Question about margin lending

[tothemax6]

Hi All,
Have a few questions about margin lending, as I'm sure some people here use margin. Firstly, does it act as a 'line of credit', so to speak, as a credit-card does? Or is it a straight-up lump sum debt which you then pay interest on, no matter how much you use to buy shares? Also, noticed that the rates are quite high, just looking at comsec it is about 10% (although I believe IB has low rates). Doesn't this make it unattractive for use in long-term investing (as the comsec 'how it works' example depicted), and rather makes it suited for short-term, day-trade type usage (assuming that it is a 'line-of-credit')?
Cheers!

 

[tech/a]

Hi All,
Have a few questions about margin lending, as I'm sure some people here use margin. Firstly, does it act as a 'line of credit', so to speak, as a credit-card does? Or is it a straight-up lump sum debt which you then pay interest on, no matter how much you use to buy shares? Also, noticed that the rates are quite high, just looking at comsec it is about 10% (although I believe IB has low rates). Doesn't this make it unattractive for use in long-term investing (as the comsec 'how it works' example depicted), and rather makes it suited for short-term, day-trade type usage (assuming that it is a 'line-of-credit')?
Cheers!

No you only pay for the amount you use.
Lets say you have $30K in an account and your lender will give you 2:1 like mine IB
If you have trades totalling $33k at anyone time then your charged interest on $3 k over the period in which you use it.

 

[poverty]

Hi All,
Have a few questions about margin lending, as I'm sure some people here use margin. Firstly, does it act as a 'line of credit', so to speak, as a credit-card does? Or is it a straight-up lump sum debt which you then pay interest on, no matter how much you use to buy shares? Also, noticed that the rates are quite high, just looking at comsec it is about 10% (although I believe IB has low rates). Doesn't this make it unattractive for use in long-term investing (as the comsec 'how it works' example depicted), and rather makes it suited for short-term, day-trade type usage (assuming that it is a 'line-of-credit')?
Cheers!

Commsec is 9.6% variable, less if you prepay and don't forget tax deductible if you're investing in stocks you hope to make an income from. If I had a 30% marginal tax rate that brings commsec down to 6.72%, most people would be better off paying extra on their mortgage and letting their margin loan interest capitalise and increase.