# Margin Loans - who do you use and why?



## Pager (4 June 2007)

Posted a similar thread on reef but thought may be useful for many others to get a run down on who provides the best margin loan facilities, im looking for one so not least me . 

Who do you use and why? any bad experiences, hidden charges/fees, tied to using certain brokers or not available to use with online brokers etc.

What interest rate does your provider charge?

If you pre pay your interest how much rate reduction do you get.

Cheers

Pager


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## tech/a (4 June 2007)

*Re: Margin Loans, who do you use and why ?*

I think I may have answered you on Reefcap.

I use BT.
Rate is 7.75 currently.
I dont really pay much attention to rates.

Interest is charged only when you use it.
So if you had $20000 in your account and had only $20000 of positions open you would not be using margin.

You can use any broker.
They have a good Margin List.
They have a very good serive department and if I Want a statement its here in a fax within 10 mins.

Remember if you get called you dont have to place more money in your account---you can but you can sell SOME stock to lighten your exposure.


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## silence (4 June 2007)

I have a question that doesn't quite need a new thread.

I am going to be applying for a commsec margin loan as soon as I get the first payslip from my new job.


Ignoring what it may say on the forms, what sort of income will they *really* be looking for?


When I got my commonwealth credit card, they gave me an $8000 limit on a $12000pa income because I had an ebay business, shares, hardly any expenses, etc. So they thought something of me then.

But am I likely to be approved for a margin loan with approx $25000pa income from my job? A decent amount of shares may sway their decision but if I have to apply for a $20000 minimum limit...


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## Pager (5 June 2007)

Thanks Tech, that is a great rate you get , when I spoke with BT if you pre pay 12 months interest there current rate is 8.65%, normal rate is 9.15%. 






silence said:


> I have a question that doesn't quite need a new thread.
> 
> I am going to be applying for a commsec margin loan as soon as I get the first payslip from my new job.
> 
> ...




Silence

If you already own enough shares that are on there Margin list and so have security and pre pay your interest for 12 months don’t think Comsec will worry to much if you have only just started work and aren’t earning a lot, they incidentally have a special for new clients who pre pay for 12 months of 8.25%, minimum loan is $20K, good luck. 

Surprised there are very few replies, either posters here don’t have or use margin loans or the topic is covered elsewhere and ive missed it?

Once I have finished my search will post who I found the best, maybe of use to others.

Cheers

Pager.


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## Knobby22 (5 June 2007)

I use Comsec margin loan.
Provided you don't sail too close to the margin, they are fantastic.
Gearing is necessary in a boom market.


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## silence (5 June 2007)

If you overpay your interest do they let you claim the extra back?


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## yonnie (5 June 2007)

I hear Macquarie pre-pay is 7.75%

have no experience with them


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## Pager (6 June 2007)

Well I have phoned around quite a few providers and to be honest they are all much of a muchness, what i have found is they are *ALL* negotiable with Interest rates if pre paying and particularly if your loan is a decent size ($100K+), so if your after a Margin loan make sure you "haggle" .

Rates do vary on fist glance for pre pay most quote from 8.9% down to 8.25%, Macquarie are offering 7.75% for there new prime account but this is not strictly a Margin Loan although very similar, also it does not have a facility for Options which most providers know allow all be it Call options, basically for selling covered calls.

Cheers

Pager


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## Temjin (6 June 2007)

I use St George Margin Lending for my Wealthtrac Wrap Portfolio through 2020DirectInvest.com.au as the adviser. They recently lowered their rates to 8.4% for 12 months prepaid advance. No minimum loan, no loan establishment fee.


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## Love Zn (6 June 2007)

Have a look a June 07 Money Mag, it has Bank of the Year (awards)

St George was picked winner (not cheapest rate) and Macquarie and Westpac as finalists for Margin Lender.


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## ottg (7 February 2015)

This is a very old thread but I really need advice on:

a. Which brokers in Perth can help me obtaining margin loans.

    My current broker may only deal in property investment loans due to their license restrictions.

b. Which banks do you use? What rates did you negotiate over what period?

c. Were the LVR according to their recommended list?

d. Did the bank restrict you to ASX200 shares only do they allow SP500 shares as well?

Thx


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## ottg (13 February 2015)

Sorry to bump this thread but I really need your experiences on this.

After my inquiries I found that many of the SMSF service providers do not allow margin loans but only loans for property.

a. Any suggestions for SMSF service provider that allows margin loans?
b. Suggestions for banks that provides margin loans subject to (a)?
c. Stock purchasing platform however I do not foresee more than 10 trades a year.


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## TPI (13 February 2015)

ottg said:


> Sorry to bump this thread but I really need your experiences on this.
> 
> After my inquiries I found that many of the SMSF service providers do not allow margin loans but only loans for property.
> 
> ...




NAB Super Lever I think it's called, has it's limitations though. 

I stick to margin loans outside super only, which have greater flexibility.


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## Junior (13 February 2015)

ottg said:


> Sorry to bump this thread but I really need your experiences on this.
> 
> After my inquiries I found that many of the SMSF service providers do not allow margin loans but only loans for property.
> 
> ...




Only certain types of gearing are allowed through an SMSF.  You cannot use a margin loan.  

You can purchase instalment warrants or you can establish a LRBA (limited recourse borrowing arrangement) - usually used to purchase direct property.


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## TPI (13 February 2015)

Junior said:


> Only certain types of gearing are allowed through an SMSF.  You cannot use a margin loan.
> 
> You can purchase instalment warrants or you can establish a LRBA (limited recourse borrowing arrangement) - usually used to purchase direct property.




NAB Super Lever is a LRBA product for shares I believe.


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## Junior (13 February 2015)

TPI said:


> NAB Super Lever is a LRBA product for shares I believe.




Interesting...I wasn't aware of that product.  I always assumed the compliance burden and complexity of requiring a separate LRBA for each stock would be prohibitive.


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## PinguPingu (14 February 2015)

I thought about using Commsec, as that would mean at least I have instant transfer between by netbank saver and CDIA, brokerage is ok at the usual aussie rip off of 19.95 a trade under 10k and the rates are somewhere in the middle off whats offered, around 7.67% I think, might be a touch lower now. YET, for every goddamn transaction, on top of the $20 already, they'll charge a $10 'transaction' fee for every trade settled using the margin loan. 


The other option is Bell Direct's dodgy as hell 'direct cash account' which isn't even a bank account, but at least there are no bullsh*t fees, its $15 per trade and the rate is 7.55%, of course their 'cash account' pays you a pittance of interest.


In the US, they are almost approaching zero brokerage these days


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## TPI (14 February 2015)

With some negotiating you can get margin loan variable interest rates below 5.5%, depending on the size of the loan.


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## ottg (14 February 2015)

Thank you for all the pointers so far. I will follow up on them.



TPI said:


> With some negotiating you can get margin loan variable interest rates below 5.5%, depending on the size of the loan.




Can you be a bit more specific wrt to which banks are prepared to negotiate from your experiences.

Loan size around $250k  and LVR 60% - some banks cap their loans at $250k. 

Do you know of banks which have uncapped share investment loans?


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## PinguPingu (14 February 2015)

TPI said:


> With some negotiating you can get margin loan variable interest rates below 5.5%, depending on the size of the loan.




My loan will probably only be in the range of 30-40,000. I know Westpac has variable interest rates at 5.49% for ASX100 stocks only. I am thinking of just going with them and only gearing the large cap trades. 

 TBH, it's all these BS fees and insane commissions that really bug me. I mean c'mon Commsec. A 10$ transaction fee means effectively $60 round trip brokerage for under $10k trades. Complete rip-off.

I would so go with Bell Direct if their cash account was actually a bank account.


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## ottg (15 February 2015)

Thanks PinguPingu!


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## Wysiwyg (15 February 2015)

PinguPingu said:


> I would so go with Bell Direct if their cash account was actually a bank account.



Is that because it doesn't have the Government Guarantee?


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## PinguPingu (16 February 2015)

Wysiwyg said:


> Is that because it doesn't have the Government Guarantee?




Its literally not even a bank account. It's basically a trust account that when you deposit 'cash', it issues you with Bell debentures/secured notes.


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## ottg (3 May 2015)

Found this recent margin loans comparison report from Canstar - tables on last page
http://cdn.canstar.com.au/wp-content/uploads/2015/05/Margin-Lending_StarRatings_Jan_2015.pdf


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## jank (14 May 2015)

A question on Margin Loans. What happens to the div and franking credits for shares you 'own' under the margin load. Do you collect them as well. Also, can you buy international shares or are you restricted to Australian shares.


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## VSntchr (15 May 2015)

jank said:


> A question on Margin Loans. What happens to the div and franking credits for shares you 'own' under the margin load. Do you collect them as well. Also, can you buy international shares or are you restricted to Australian shares.




With regard to your question on dividends and franking; think of a margin loan the same way you would think of a line of credit. I.e. the shares are held entirely in your name and the dividends and franking are entirely yours. As for international shares, this would depend on the margin provider that you choose.


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## jank (15 May 2015)

Thanks for the info.

Some back of the napkin calucations to flesh this out a little.


$20,000 in personal Stock
$30,000 in own Cash
$50,000 Margin Loan.

So can invest up to $100k

7% interest rate on 50,000 = $3,500
3% average dividend = $3,000
Gross Loss = $500
Tax deduction .37 x $500 = $185
Net Loss = $315

So it would cost me $315 per year to hold an extra $50,000 on equity on my books?
Am I missing anything here?

Assume of course that the underlying equity stays static for now.
Also, how does franking credits play into this, this would mean my Net Loss would be smaller?


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## tech/a (15 May 2015)

Most use Margin in correctly.

Well I think they do.

Margin should be used in circumstances where your purchase requires more Money that you have available equity.
This should be done without increasing Risk.

Lets take a trade in a stock worth $25
You have an allocation of $10K max to this trade.
You have 2 stops one relaxed and one aggressive.

Relaxed is $1c so you have decided that you'll risk 3%
So $300/$1 = $7500 so no problems.

Aggressive trade your stop is 50c below your buy price and you still want to risk $300
So $300/.50 = $600@$25 = $15000.
You take the extra $5000 on margin

Risk is still the same.


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## VSntchr (15 May 2015)

tech/a said:


> Most use Margin in correctly.
> 
> Well I think they do.
> 
> ...




Agree when your talking about trading tech, but for the purposes of levering up a long term portfolio I think the application is different. 
Sir O had a few good posts on his use of margin for a longer term 'through the cycle' portfolio approach. Perhaps the OP should have a read of this also. I think it is in Sir O's beginner thread.


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## jank (15 May 2015)

I do not want to trade short term, what I want is to increase the amount of money that I can put to work, while making it tax efficient in the long run.


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## tech/a (15 May 2015)

jank said:


> I do not want to trade short term, what I want is to increase the amount of money that I can put to work, while making it tax efficient in the long run.




Just take out a loan---or CFD's
While its nice to think only of the upside
You also have a potential down side

I still cant understand long term holders who don't think there is any risk they need to mitigate.

The feeling seems to be any fall in price and she'll be right!
At least margin calls keep you honest---and aware.


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## craft (15 May 2015)

jank said:


> Thanks for the info.
> 
> Some back of the napkin calucations to flesh this out a little.
> 
> ...




Depends on your marginal tax rate: for the top rate numbers are as follows.

A fully franked 3% return on your personal $50K contribution would give you an after tax return of $1135

Adding a 50K margin loan at 7% would reduce your after tax return to $416.  You are still positively geared; the cost is a reduction of after tax income of $719 – that requires around a 1.5% after tax capital gain on the 50K borrowed to break even. Hold the asset for more than 12 months and you get the 50% CGT deduction to help achieve the after tax result.

Bear in mind if interest rates go up your cost to hold the extra 50K exposure increases and the higher interest rate will also likely have a negative impact on the price of your holdings.  The cheapness of the exposure is quite attractive at the moment but never forget leverage is a double edged sword.


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## jank (15 May 2015)

tech/a said:


> Just take out a loan---or CFD's
> While its nice to think only of the upside
> You also have a potential down side
> 
> ...




In fairness you are contradicting yourself here, saying that long term holders don't think of any risk yet then accept the fact that a margin call makes one honest...yet then recommend a CFD, which to me has more risk.

Of course I am aware of the downside risk, everything has risk, from leaving cash on deposit to taking out options on a speculative miner.


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## tech/a (15 May 2015)

jank said:


> In fairness you are contradicting yourself here, saying that long term holders don't think of any risk yet then accept the fact that a margin call makes one honest...yet then recommend a CFD, which to me has more risk.
> 
> Of course I am aware of the downside risk, everything has risk, from leaving cash on deposit to taking out options on a speculative miner.




Happy to help.


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## jank (15 May 2015)

craft said:


> Depends on your marginal tax rate: for the top rate numbers are as follows.
> 
> A fully franked 3% return on your personal $50K contribution would give you an after tax return of $1135
> 
> ...




Thanks for the info. Makes it more clear now.


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## Bintang (16 May 2015)

ottg said:


> Found this recent margin loans comparison report from Canstar - tables on last page
> http://cdn.canstar.com.au/wp-content/uploads/2015/05/Margin-Lending_StarRatings_Jan_2015.pdf




That Canstar report is very interesting. The average variable interest rate of the 8 listed lenders is 7.76% but since the report date is Jan-15 I presume these rates will have come down to around 7.25% by now. 
However, I am wondering why Westpac has a much lower rate of 5.45% (with effect from 1 Jun 15) https://onlineinvesting.westpac.com.au/Public/MarginLoans/MarginLoans.aspx

I use an ANZ margin loan, for which the current variable interest rate is 7.59%.
Does anyone here use Westpac?
I’m wondering if I should be changing lenders. A 2% interest rate differential is a bit hard to ignore.


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