Margin Loans

Discussion in 'Shares & Funds' started by MTR, 3rd Apr, 2021.

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  1. Mcube

    Mcube Well-Known Member

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    Hi @oracle , I am wondering whether you also use home equity to invest in shares or just use margin loans only for shares? Thanks!
     
  2. oracle

    oracle Well-Known Member

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    Use both.

    Cheers,
    Oracle.
     
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  3. TAJ

    TAJ Well-Known Member

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    Not long after joining the Forum and reading extensively the "Other Asset Classes" thread I plucked up the courage to dive into the world of LIC's. I had been contemplating going down this track for over twelve months prior to taking action. My initial investments were done using my own money as I considered this to be the prudent approach.
    It wasn't long before I realised that to expedite my position (retiring in 2 yrs) I could bolster my holdings by taking out a margin loan. This action is definitely not for the faint-hearted! So, I went ahead and borrowed what I felt at the time was a manageable amount of debt, knowing full well that while it can amplify your winnings it can also have the undesired affect of sinking you.
    Disclosure :- My borrowings were close to 700k.
    On retiring, I wanted not only the SANF, but also to not have to be constantly monitoring my investments, which I found myself doing having borrowed funds. The solution being to repay the loan.
    Did it bolster my position overall?
    Youbetcha!!! ;););)

    Definitely not for everyone though.....
     
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  4. SatayKing

    SatayKing Well-Known Member

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    Closed the margin loan shortly after the GFC. Never really in danger territory as the max gearing reached was mid 30% and with the LVR on the shares the market at it nadir (hindsight knowledge there) would have had to have fallen another 50% or thereabouts before I would have been in margin call. They were still offering me another $800k+ but wasn't worth it at the expense of my mental health.
     
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  5. ChrisP73

    ChrisP73 Well-Known Member

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    Spot on. My experience too.
     
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  6. Whitecat

    Whitecat Well-Known Member

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    how much are we talking?
     
  7. Whitecat

    Whitecat Well-Known Member

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    Would a margin loan be a reasonable strategy just with set and forget diversified ETFs like VGS, IWLD etc?
    Or do you need to be more actively picking shares?
     
  8. sash

    sash Well-Known Member

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    I have 2 margin facilities one personal one company fro $1m each.

    Issue with margin loans is to keep gearing at 35% or less. As in most instance (exceptions like 1929 crash there) is share market normally don't drop more than 40% over night.

    So explain my 35% or less gearing is to avoid margin calls.

    For example lets say you have 100k in shares...35k is borrowed and 65k is growth/equity...so you loan LVR is 35%. If the market drops 40% and say your investments are worth 60k...you loan LVR is just under 60%. You are safe as margins on most quality investments (ETF/stocks) is 75%.

    Let say for example you have $100k in shares and 70k in margin loans and 30k equity/growth...you LVR is 70%. If the market drops 30%...your investment is worth 70k...you will be in margin territory as there is no equity postion from you. and they will expect you to top up about 25k. If you don't they will sell your position and pursue for the difference net of sell costs.

    I do the following to be uber safe:

    1. I stick to top ETFs. Yes they will drop but not as much as single stocks as it is based on the Index (i.e. VAS, VGS, etc).
    2. My LVR margin is like 9%. Have buying now as market dips.
    3. Be careful on speculative stocks...stick to bluechips.
     
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  9. Whitecat

    Whitecat Well-Known Member

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    I see NAB equity builder is 3.75%. If the S&P delivers on average 10% per annum (not every year but over the long run) then it seems to me that a strategy could be to get this loan and set and forget with a diversified ETF.

    What am I missing here?
     
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  10. sash

    sash Well-Known Member

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    Can you get the equity builder - i.e. will they set on up for you??
     
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  11. Whitecat

    Whitecat Well-Known Member

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    I dont know sash? What are their criteria?
    it is P and I so they probably wont loan much given my leveraged circumstances?
     
  12. MB18

    MB18 Well-Known Member

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    Can be interest only on application if you meet the criteria.
     
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  13. sash

    sash Well-Known Member

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    Don't know...all I know they are pain in the ar $e to apply for.

    Mine is with leveraged equities.
     
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  14. Whitecat

    Whitecat Well-Known Member

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    Actually NAB equity builder not allowing new applications.
    But I am interested in margin loans generally. I am sure there are others.
    Seem useful to me.
    Not sure about timing though....
     
  15. oracle

    oracle Well-Known Member

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    Minimum $250K loan amount but mine is $500K.
     
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  16. Sgav

    Sgav Well-Known Member

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    Looks as though it's up to 4% now. If rates rise again tomorrow I wonder if they'll pass that on too - NAB Equity Builder

    upload_2022-6-6_18-26-47.png
     
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  17. Whitecat

    Whitecat Well-Known Member

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    They weren't taking any new applications.
    Over 5 years should do better than 4%
     
  18. Sgav

    Sgav Well-Known Member

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    I applied anyway following Chris' lead in recent posts:
    • I submitted an EOI circa last Nov.
    • Applied via Chris method circa March
    • Got told in April my eoi had been approved (confirmed no need for the new app)
    • Was told last week they expect approval for my account this week (still waiting).
    I expect the rate will be 4.5% now following the latest announcement.

    One thing to factor in is that I can claim the interest on tax, so a 4.5% rate with 39% claimed on tax results in an actual pure interest rate of 2.75%.

    My plan is to have the amount sitting there ready to use as markets drop specific %'s. Can very easily over do it with leverage though.

    Happy to be corrected if my above maths is wrong!
     
  19. standtall

    standtall Well-Known Member

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    I have been offered margin loans a couple of times but wasn’t sure whether they affect borrowing capacity for residential loans and didn’t bother investigating it any further.

    Do they?
     
  20. oracle

    oracle Well-Known Member

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    I think they do. Even if you haven't drawn out the full amount they would access you assuming the full limit being drawn and repayments made on full limit amount.

    Cheers,
    Oracle.