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Margin Loans Margins loans - why so high, relatively

Discussion in 'Finance & Banking' started by tony, 9th Aug, 2007.

  1. tony

    tony Well-Known Member

    Joined:
    20th Jul, 2007
    Posts:
    46
    Location:
    sydney
    Hi

    In looking at my margin loan (with CBA) I note that the rate (today) is 8.75% (the fixed rate is 9.25%), but I'm curious as to why the rates for margin loans generally are so high relative to other loans which equally have collateral.

    Eg

    my investment property loans are something like 7.22% (after discount).

    Can anyone explain why margin loans are so high relatively speaking compared with non margin loans.

    Many thanks

    Tony
     
  2. Sk3tChY

    Sk3tChY Well-Known Member

    Joined:
    4th Aug, 2007
    Posts:
    358
    Location:
    Sydney, NSW
    Well I ain't no expert...

    But Im guessing that because theres more risk involved with margin loans.

    Higher risk, Higher Return.

    This saying generally works in conjunction with everything when it comes to investing. The banks are taking a marginally bigger risk with margin loans, which is why im assuming the interest rate is higher. (note the pun, dam i'm good)

    I guess the stock market can **** itself, and if you can't afford a margin call, and the shares you've invested in have shat themselves, well then the bank is gonna have more trouble getting their money back. Where as with mortgages (i.e. Your IP loan), they generally don't have any hassles taking your house and selling it.

    If I were you i'd just take out the available equity on your IP loan, and use that, rather than getting a margin loan.

    But i'm only a noob, thats just my guess, im sure some more of the experience people on the forum will either agree with me, or correct me. :)
     
  3. Simon

    Simon Well-Known Member

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    Newcastle
    Because they are basically asset loans. Usually income, employment etc is not taken into account.

    Cheers,
     
  4. Leandro

    Leandro Well-Known Member

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    8th Dec, 2005
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    Location:
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    You can do both. You can draw down equity from your one of your properties and then margin loan that amount. I believe that this approach would used by many forumites.
     
  5. Sk3tChY

    Sk3tChY Well-Known Member

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    Location:
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    Ooo true that mang...
     
  6. Sk3tChY

    Sk3tChY Well-Known Member

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    4th Aug, 2007
    Posts:
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    Location:
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    Commsec fixed pre-paid for 3-6-9 months 1-2 years is 8.75%.
     
  7. willy1111

    willy1111 Well-Known Member

    Joined:
    5th Jul, 2006
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    Location:
    Melbourne
    Maybe there is an opportunity there (ala Aussie John in the 90's).

    If I remember correctly - investment property loans were priced 1% higher than home loans some time ago.