NAB Equity Builder - too good to be true?

So getting approval for this loan would be seperate to any mortgage u had. Say for example you had a PPOR with LVR at 90% because u had a guarantor. But then you saved up $10k, could you still use this product to borrow $30k? Assuming you can service the loan of course.

 

The LVR is worked out on the shares only.

 

These 4 are newly added to the approved list.


https://www.nabmarginlending.com.au...rms/Approved_Investments/NEB_AIL_20180219.pdf

 

I'm going to one of their Borrowing to invest on the 27th of Feb at 333 George St, Sydney branch.
Anyone else is interested?

 

Can't go as I'm away. Expect a summary

 

What am I really going to give which is not covered in their documents?
Any specific questions anyone want to know?

 

How do they determine serviceability and how much you can borrow would be a good thing to know.

 

One thing that would be interesting to find out is can you request say $500K limit even though you only have $50K right now but over time you will have more money say additional $4K per month saved up to invest and keep drawing down the loan.

Cheers,
Oracle.

 

I suspect the answer would be... It depends on your own situation.

 

I'm not sure if I understand the question right.

If you have $50K then the loan would be $200K at 75% LVR. Isn't that it? How can they give you $500K based on a 'promise'?

 

They can approve loan based on your serviceability. If I have $50K and they give me $200K and say 6 months later I have another $50K am I supposed to keep filling in applications forms to extend my credit limit? That would be waste of time.

I would think they would normally approve loan limit based on your serviceability and expect you keep purchases at certain LVR to qualify for no margin call condition. I believe it's 50 LVR from memory. So if you have $50K and your loan limit is $200K the maximum you can purchase is $100K ($50K your money and $50K loan) thereby keeping LVR at 50% and then there will be no margin call on the $100K portfolio.

This is just my assumption. Could be completely wrong. Would be nice to hear from someone using this facility and advising on how it actually works. And may be even get it confirmed when you see them to walk you through example of how the mechanism works.

Cheers,
Oracle.

 

Cool. Get it now. I missed the keyword 'limit' before.
It is a good question.

 

Perhaps, but would be interested to see if they use same calculations as for homeloans. Many of us property investors are capped for borrowing so would be great if we could get access to this product instead.

 

Hey @oracle I believe the limit is based purely on servicing. I was never asked to show proof of funds on applying for the facility. I believe only when executing a purchase will you need to stump up the necessary cash/equity to match the LVR cap.

 

I guess the 'limit' may affect the borrowing capacity. Most likely the $$ you can't use for any other reasons except buying those selected stocks.

 

I watched the NAB webinar late last year on the topic of borrowing to invest. Attached is the presentation that they went over.

 

Similar to property mortgage calculations.

 

Answer is Yes. You can get the approval and then go in step by step.

 

What I learnt:
Term= min 3 years - max 15 years
PI payments. No panalty for paying off early.

IR = 4.95% at the moment. 2% discount on margin rate. No fixed rates.

Funds can be used for Business or investments purpose.

Company holding: There is application fees. No fees for personal accounts.

 

I’ve been doing some back testing of performance of a few of the shares that are approved Equity Builder and I’ll share the results for those interested. I’ve always had a problem with the way companies report p.a returns that rely on two fixed dates for the start and end, there is no accounting for inter-annual variability. Inter-annual variability is far more useful to the individual as they are likely to purchase throughout the year.

To give myself piece of mind I conducted analysis on the 10 year performance for the daily close price over the historical data. This data was then used to calculate the total returns if an individual in the 37% tax bracket was to borrow at an interest rate of 4.95%.




Interestingly in all cases the gross dividend return makes up over half the returns, this could be detrimental in a high tax scenario.

The total p.a. return ranges from 9%p.a to 15%p.a, seemingly not a major difference. However the total return has a much larger range from 44% to 194%. Evidence the eighth wonder of the world - compounding.

To be expected the GFC had a significant impact on performance with the period 6 June 2007 to 12 December 2007 exhibiting negative or near zero capital return. The reverse is likely to be seen for purchase at the lowest point of the GFC when a full 10 years of data is available.

The table below represents a summary of the AFI daily close price, 10 year performance.