Margin Loans Suncorp's margin loan interest rates

Hi guys,

Just a note of warning...

You guys need to be a little careful when looking at interest rates like this that you do your calcs accurately and consider the difference between capitalising up-front versus paying monthly on a variable rate. The gap isn't nearly as big as you might think.

I'm doing the numbers now and am talking to a guy at Suncorp about their funding options so I get the calcs right. But the initial cut suggests that the 7.65% rate if capitalised and then interest on interest is applied monthly for the full year is equivelant to about 8.31% in simple interest for the full year.

That's not nearly as good as some might initially be led to believe when looking at headline rates like 7.65%.

Even if you pay this out of your cash reserves up front you still need to account for the time value of money and the lost income potential of that cash with it out of your pocket immediately. A simple discounted cash flow would show equivelance.

Don't get too hung up on headline rates. Do your math!

Once I get it nutted I'll post the alternative scenarios up here for you all with equivelancies in simple rates. This Suncorp rate is a good one, and better than my current variable rate, but its not as brilliant as it might initially appear.

Cheers,
Michael.

 

Sim's right. Surely you can get a better return on your money in the intervening period (even accounting for its periodic reduction due the interest payments over time) than the interest differential of a few bips...but if you take into account the potential tax benefits (and they differ for everyone) then it can be a good strategy. Particularly if your view is interest rates will rise.

Cheers
N.

 

Nigel and Sim,

I agree. I was going to factor in the tax break of early payment and then the time value of money of having that refund up front but it all starts to get a bit messy and variable based on individual circumstances.

For example, my situation is such that I don't think I'll be paying virtually any tax this year as it is. Something to do with grape lots or some such, but there is no real added advantage to me to pull yet another deduction into Fiscal 06/07.

However, I do concede that the bond market is factoring a rate increase in to the back half of this year and I tend to agree with that projection. So the variable rate model suggests added risk.

If only it were simple...

Cheers,
Michael.

 

ive quickly done up excel, takes into account interest on interest for both the prepaid amount and the amount of interest in which the loan was original prepaid from.

if the interest was added to the loan at the variable rate of 9% the figures would be
7.5% prepaid rate = revised rate 7.87%
7.65% prepaid rate = revised rate 8.03%
7.8% prepaid rate = revised rate 8.19%

i havent included the time value of money, however i have included if you use the tax return funds to pay down your interest balance and reduce your monthly interest costs, however the date the taxpayer recieves the money needs to be entered (set at 30 october default)

edit: see below for the attachment with tax

 

OK guys,

Here's the quick and easy comparison of the basic rate options by converting them to simple rate equivelants. No fancy stuff around tax benefits etc.

Dave, I think you'll find that sheet of yours only calculates simple interest and not compounding interest on interest for the capitalising option. I used the template in my second sheet though to calculate the compounding interest accurately for the capitalise up front option for Suncorp.

Basically it works out like this:

Variable Interest Rate of 8.5% compounding: 8.84% simple
Capitalised 8.65% Rate at Suncorp: 8.32% simple
Prepaid via 9% Simple Rate loan account at Suncorp: 8.34% simple

So both the Suncorp funding options are similar at around the 8.3% mark, and my existing variable rate with ANZ is closer to 8.8% simple.

Half a percent plus the benefits of deductibility this year and locking it in during an upward biased rate outlook suggest I should make the change. But the pain of a whole new application is making me think its a job for tomorrow...

Cheers,
Michael.

Cheers,
Michael.

 

depending on your way of using this sheet will depend on the value you put in e10

use capitalise interest for the year if
you want to no pay any interest for the whole year and to capatlised the whole lot, in this case the before tax is probably the best one as you would use your tax return else where... ie pay down non deductible debt


use paid at end of month
if you want to pay off the porportion each month as you would if it was a variable arrears loan....

this has fixed the issue michael was having

 

Hi,
Do you know if we could margin Navra fund with Suncorp ? Much apreciated.

 

yes...........

 

I already do They offer very competitive LVR and buffer too.



(From my investigations only, not associated in any way)

 

suncorp margin interest rates

Thanks for info on rates. I am currently paying 9% with Leveraged Equities and their service is good. I have spoken to Suncorp and they will do the 7.8% for me as long as my application is submitted before 2 May. What is their service like? Any significant problems?

 

I've been with Suncorp for a year and Leveraged Equities for 2 years.

What I like about Leveraged Equities is that you have a personal representative, whereas Suncorp has a helpdesk so it's non-personalised. So in that respect I prefer LE, but other than that I haven't noticed any big differences.

Their LE website has had uptime of 100%, Suncorp maybe 99.9%, Suncorp's website is also a bit slower to load.

But both loans have been 'set and forget' so they've both been hassle free.

I'm going Suncorp all the way this time but won't close my LE account, in case I transfer back in the years ahead.

 

Thanks Glebe. That was what I was hoping to hear. I'm a little surprised that LE are not too negotiable on interest rates. I have 250k under management and they are only agreeing to 8.85%. They seem to have different rates for different clients but my rate is top end of the scale.

 

Julia at NavraInvest should be able to give you a list of Margin Lenders for NAVRA (just did for me).

Suncorp want a copy of the HDT though, problem is with the last IP purchase I'm waiting for the return of the Trust deed as I hope to get in before MAY

 

Scotty

Just confirming that the rate (7.8%) with Suncorp , is only applicable if you prepay all the interest?

Gazza

 

Thanks Redwing. Suncorp are happy to lend on Navra. My Trust deed is also in my Bank's hands too - I'm getting them to certify a copy and Suncorp are happy to receive that copy by fax. It's a tight squeeze but I think it is possible. There may be a little leeway if you liase directly with them - the lady I spoke to realises my situation and is hopefully oking it with management.

Gazza - yes rate of 7.8% is pre-paid but I'm capitalising my interest so it does not affect my cash flow anyway.

 

Just an update on BT.
After waiting a week to hear back from them - I rang again to see what happened with their competitive offer they were working on. I was told, sorry sir we have no record of that request.

She then promised to call back the same afternoon.

You guessed it, no call on the date they promised.

Finally received a call back today, oh sir you already have a discounted rate
(0.1%), there is no way we can offer you a further discount.

Time to see if I can get a Suncorp acct in time now.

 

only a few days left now.......