NAB Equity Builder - too good to be true?

Discussion in 'Sharemarket Investing Platforms, Tools & Services' started by BPhil, 27th Nov, 2017.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    They would hold the shares as mortgagee while there is a debt on them. Once the loan is paid out they could then transfer title back to the beneficial owner so that they become legal owner. There would be no CGT on doing this. There may be some bank charges, but these should be minimal and in their PDS.
     
  2. Lancel_Bracken

    Lancel_Bracken Member

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    I had to pay off and close my loan early due to how stupid tight my bank was being approving a refinance

    No charges, smooth process took about a week, and the shares were transferred to my brokerage account
     
  3. R-Hub

    R-Hub Well-Known Member

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    Similar to a mortgage with bank holding the title.

    Really good to hear that closing/paying out the loan is a simple process, with also the transfers and costs being quick and minimal
     
  4. Martin73

    Martin73 Well-Known Member

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    Brokerage costs aren't disclosed - you can ask NAB if you are curious but this isn't really IMHO a product for fine judgement about price, brokerage costs and trades.

    You simply specify the value of shares you want purchased through the facility and NAB execute the trade within a couple of days. To the bets of my knowledge you can't specify a purchase or sale price.

    The purchase of shares is at market - for example my transaction confirmation for purchase of XXXX shares of VHY on 27 December was executed @ $62.60.

    As that was the closing price for the day it looks like NAB absorbed any brokerage costs i.e. the amount drawn from my loan is simply the number of shares purchased multiplied by the cost at purchase.
     
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  5. Redwing

    Redwing Well-Known Member

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    The *special rate now looks to be 5.05%
     
  6. Redwing

    Redwing Well-Known Member

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  7. RayO

    RayO Well-Known Member

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    I just noticed that BKI and AUI have been added to the approved list
     
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  8. Redwing

    Redwing Well-Known Member

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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Quote from the article:

    The Equity Builder is a great way to save money on brokerage. I often see people online looking for ways to save brokerage on frequent, small share purchases. It’s usually in the context of comparing Vanguard’s ETFs versus managed funds, where ETFs have cheaper ongoing fees, but the managed funds allow free deposits. If you’re the kind of person who wants to make small weekly or monthly deposits into your share holdings, but you don’t want to pay a premium on management fees, then buy cheap ETFs or LICs through the Equity Builder, and make as many repayments as you like. It effectively rolls all of your small transactions into a single up-front $14.95 brokerage fee.
     
  10. Carpe Dividendum

    Carpe Dividendum Member

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    Thanks for the link, Redwing. :) I suspect the crowd here are a bit advanced to get much new info from my article. I’d be curious for any feedback though.
     
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  11. oracle

    oracle Well-Known Member

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    @Carpe Dividendum are you able to provide a simplified example with numbers to explain how it works? Just want to make sure my understanding is correct?

    Cheers
    Oracle
     
  12. Carpe Dividendum

    Carpe Dividendum Member

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    Borrow $10,000, use it to to buy ETF/LICs, including paying $14.95 for brokerage.
    Each week, deposit $100 into repaying your debt, paying $0 brokerage. Each month, also deposit the obligatory monthly P&I amount, paying $0 brokerage. After X months, finish paying off the loan, take the shares, and live happily ever after. End result: total brokerage paid is $14.95, management fees paid is whatever the low-cost funds you bought charge, ie, 0.14% or so, and you’ve earned dividends on the full amount of shares since the beginning.

    Comparison 1, ETF/LICs directly:
    Each week, buy $100 worth of ETF/LICs, paying $9.95 brokerage each time. After X months you have a similar amount of shares, but you’ve paid squillions in brokerage fees. Management fees paid is roughly the same, but a little lower because you’ve had much less shares for most of the duration, gradually increasing from zero shares at the beginning. Also, you earned only a fraction of the dividends for the same reason.

    Comparison 2, managed funds directly:
    You open a Vanguard retail account, with the minimum $5000 buy in. Then you deposit $100 per week into the account. End result is a similar amount of shares again, you’ve paid no brokerage, but you’ve paid a lot more for the higher management fees, and you’ll continue paying those high management fees until the end of days. Also the dividends is lower than the Equity Builder example because you only started with half the amount of shares, but higher than the previous comparison because of the mandatory $5000 buy in.

    I’m not sure if that clarified anything or not. :p
     
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  13. oracle

    oracle Well-Known Member

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    Thanks makes sense now.

    Couple of points so there is complete transparency.

    1) When you borrow $10K and buy $10K of shares you are only purchasing those shares once hence the brokerage is charged only once. But what needs to also be mentioned is you start paying interest which currently at 5.05% on that $10K straight away. Hence no brokerage but there is interest cost. But on the upside you do get entitled to the dividends paid by those shares.

    2) By paying $100 periodically you are infact repaying the loan and increasing your ownership of those shares which after X number of months/years will repay the loan completely thereby transferring the 100% ownership of those shares to your name.

    What would be ideal is you taking out $100K loan and then purchasing say $5K of shares each month ($2.5K savings + $2.5K from loan) until you use up the $100K. Usually, that is more realistic scenario for most people in accumulation phase where they will only get money to invest periodically like once a month.

    Cheers,
    Oracle.
     
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  14. Carpe Dividendum

    Carpe Dividendum Member

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    Yes, you’re paying interest from the start, but the dividends you earn should be higher than the interest. (Depending on whether you invest in Australian or international equities.)

    I don’t think I understand why spending your $100K loan in $5K chunks is ideal. That way, you pay $14.95 brokerage each month, instead of only once, and you miss out on tons of dividends (and interest, but again, the dividends can more than cover the interest). Wouldn’t you be better off just diving in with the full $100K? (Depending on your servicing capability, of course.)
     
  15. oracle

    oracle Well-Known Member

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    If you have $30K saved up you can buy $100K straight away @70% LVR.

    Let's say I save $2.5K each month from my salary. How do I go about investing in Nab Equity Builder? I keep saving $2.5K each month and wait 12 months to save up $30K and get a loan for $70K to buy $100K.

    What should I do next year / 13th month when I have $2.5K saved up? Do I again keep saving for another year until I have another $30K saved up and apply for another $70K loan? What if lending conditions change and getting another $70K loan becomes harder?

    Wouldn't it be nice to have $150K loan approved based on your serviceability and you can draw down the loan in small chunks provided every new purchase is at 70% or less LVR. You don't have to keep applying for new loans and having to go through tough credit checks again and again. Also, you can buy more frequently as you have money saved up from each pay. It allows you to be in market faster than having to wait until you save up enough to go for another loan. I know you pay brokerage but that is something you can decide either buy each month or each quarter to keep your brokerage costs down.

    Cheers,
    Oracle.
     
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  16. Peppas

    Peppas Well-Known Member

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    Sorry, I may have read this incorrectly, but if you already have a parcel of shares in a lister ETF or LIC, can you use that as the deposit?

    Also, does this hurt your serviceability any differently to say a home loan?
     
  17. Paddi

    Paddi Member

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  18. Carpe Dividendum

    Carpe Dividendum Member

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    Yes, you can. That’s how I did it.
     
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  19. Paddi

    Paddi Member

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    Do we need to set up a separate account for the p&i payments to be deducted from and dividend paid? Or can it come out from an existing personal account?

    Which account the interest is paid from and dividends is received shouldn't make a difference to deductibility, correct?

    Getting confused with terry's tax tips where he's saying be careful about mixing personal and investment funds.
     
  20. Peppas

    Peppas Well-Known Member

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    Great, thanks for that info :)
     
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