Margin Lending - finding a right lender

Hello,

We are looking to establish a margin loan facility to gear our investment into managed funds.

I have been using the InfoChoice's Margin Lending information to find a right margin lender.
We would like to borrow $100,000 to match our current managed fund investment – to keep LVR at 50% to start with as learn more and become more comfortable with margin lending.

After reading Sim’s article about how Margin Loans work and because of inexperience, I tend to select margin loan option with 10% buffer, rather than smaller buffer (7.5% - Goldman Sachs JBWere, 5% - few other lenders).

Then based on interest charged (in arrears) each month at a variable rate and by sorting the results in ascending order (by interest), the result is as following:

Company Variable Fee - Trust Company
----------------------- ----------- -------------------
National Australia Bank 8.05 $150.00
Smith Barney Citigroup 8.05 $150.00
Suncorp 8.25 $150.00
Colonial Margin Lending 8.3 $225.00
St. George Bank 8.35 $150.00
BT Financial Group Ltd 8.4 $200.00
Leveraged Equities 8.4 $250.00

And if we would opt to pay interest in advance (for example, 12 months) the result is (again, ordered by interest rate ascending):

Company 12 Mth
----------------------- -------
Suncorp 7.65
National Australia Bank 7.8
St. George Bank 7.95
BT Financial Group Ltd 8
Smith Barney Citigroup 8.05
Colonial Margin Lending 8.1
Leveraged Equities 8.4

I tend to favor Natioanl Australia Bank based on the above selection approach, but will be very happy to know how would you go about selecting margin lender.

Are there any aspects that I missed?

Thank you.

One of the first things to check is whether the margin lender you are looking at will actually offer margin against the funds you have (or are looking to invest in).

Not all lenders do all funds, and some (like Leveraged Equities) set limits on how much they lend against a single fund to manage their risk ... so they won't always lend against it.

Also pays to check the LVR the lender will offer against the fund - some are more conservative than others and won't offer an LVR as high as others.

I wouldn't base my decision on the setup fees alone - that's a very small percentage of what you're going to be paying overall.

Interest rates can generally be negotiated too.

It's also worth doing some investigation (by asking people who have used the lender before) as to how easy it is to set up a margin facility with each of the lenders (some require you to jump through hoops to get a loan).

Some margin lenders assign you a personal account manager, which makes life easier when you have questions / problems / instructions ... there is a single point of contact.

Also check out the fine print in the application form and disclosure statements ... not all margin lenders work the same way - some want extra security from you, and some don't hold the investments for you as nominees.

Sorry ... it's not as simple as comparing figures on InfoChoice

The two lenders that I think most people seem to use around here are either Leveraged Equities, or BT

Once you've chosen a potential lender, it's probably worthwhile you taking the application forms and disclosure statements to your accountant and/or solicitor for them to advise you on any traps that may exist with that product.

Sim,

Thank you very much - I have followed your recommendations and have already realised that my original selection wasn’t complete.
Indeed, some lenders are prepared to lend more against the funds that I have. And the approved securities list varies across lenders.

Following your other suggestion, I would like to ask whether anyone on the Forum has used (currently using) Suncorp Margin Lending. They have online application process with quick approval, comprehensive list of funds that they would lend against and high gearing ratios - 65%-70% on the funds I’m interested in.

Appreciate your help.

You will also find that you can negotiate better rates.

I pay 7.8% to LE where the quoted rate is 8.4%

Cheers,

I pay 7.8% to LE where the quoted rate is 8.4%
Simon,
Last time you said this, I emailed my LE account manager, and the word was that all Navra clients were on the same interest rate!! I was told that it depends on how much is in the account, whether you have a financial advisor and if you have other Westpac accounts.
I know I have a larger loan than you, but do you use Navra financial advisors and have Westpac accounts?
I can't get better than 8.25 with LE.
Di

Ditto. I got referred from LE back to Navra and then the following response "8.25% up to $250k; 8.1% from $250k to $500k and 7.9% for loans above $500k".

Seems like Simon has been lucky in getting a better rate out of LE.

Dave

No - I didn't even mention Navra when I asked. Was just a simple email saying I heard that discounts were available and could they offer me something to save me from having to ask the other lenders what they could do.

No Westpac accounts at all.

The only thing I can think of is that I have been a client for 10+ years. But hovered around the $100K mark for most of it and only recently climbed to $180K in lendings.

Or it might be my striking looks?

I am a lucky fellow but I wouldn't put it down to that alone, there must be a reason.