When do you repay a margin loan?

Discussion in 'Share Investing Strategies, Theories & Education' started by builder2818, 8th Jan, 2009.

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  1. builder2818

    builder2818 Active 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?
     
    builder2818, 8th Jan, 2009
    #1
  2. Simon Hampel

    Simon Hampel 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.
     
    Simon Hampel, 8th Jan, 2009
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  3. builder2818

    builder2818 Active 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?
     
    builder2818, 9th Jan, 2009
    #3
  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
     
    AsxBroker, 9th Jan, 2009
    #4
  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
     
    Sacko, 12th Jan, 2009
    #5
  6. jrc

    jrc Well-Known 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.
     
    jrc, 15th Jan, 2009
    #6