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When do you repay a margin loan?

Discussion in 'Investing Strategies' started by builder2818, 8th Jan, 2009.

  1. builder2818

    builder2818 Well-Known Member

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    I have an understanding on how margin loans work and the advantages and disadvantages of having one. However, one thing I am not too sure on is when is the best time (if any) to pay back the principal of the margin loan. I have read about selling some of your holdings to do this but isn't this like taking 2 steps forward and one step backwards if the value of your investments have increased?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Why do you want to pay back the principal ?

    It's effectively a revolving line of credit which never needs to be paid back (provided you pay the interest and maintain the LVRs wilthin their limits).

    ... unless you are looking to de-leverage for other reasons of course.
     
  3. builder2818

    builder2818 Well-Known Member

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    Wouldn't it seem like you would be losing alot of the value of your portfolio when you had to pay it back (you can't keep it forever)?

    Is that what most people do........retain the principal for as long as they can and just keep paying the interest on the loan?
     
  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi Builder,

    When would you pay back the loan on an investment property?

    Cheers,

    Dan
     
  5. Sacko

    Sacko Well-Known Member

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    My wife asked me this recently when we were running through the figures for the family trust.

    My answer was once the interest payments are no longer efficient from a tax perspective.

    Which will mean that we have reached our goals and revive all of our income form our investments. :D
     
  6. jrc

    jrc Active Member

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    Rather than when you receive all your money from investments the better answer would be when the opportunity cost of having the loan exceeds the benefits.