Is buying a house similar to trading on margin?

frugal.rock said:

Never went with margin lending.
The fear of a margin call defeats the purpose of riding out a drawdown,

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I have used a margin loan with pretty good results in my portfolio, but it is not something that I would recommend to a beginner. Provided you keep your borrowing restricted to small portion of your over all capital base you don't have to fear margin calls.

not to mention as far as I know margin lending restricts you to blue chips?

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Not really, the list of shares that you can use as collateral is quite large, and you can use the proceeds of the loan for anything you want, you could even draw out cash from your margin loan and go and buy a car if you like, of course if you did that the interest would not be tax deductible any more.

There's plenty of warnings if the bank is going to foreclose in property, unlike margin lending which could be a bit sudden.

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Yes, definitely a pro of using property as collateral for a loan rather than shares/margin lending.

That freedom isn't there with margin lending.

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Yes it is, as I said you can withdraw cash from your margin loan no questions asked, the bank doesn't care what you do with it, you just have to make sure you only claim a deduction for the interest on your tax return when you use it for investment.

With the covid related hoops required to jump through for a refinance 9 months ago, margin lending could be a proper pain?
Despite money being cheap, banks/ brokers still don't want a pile of junk debt. Or do they...?

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I have always found Margin loans to be pretty straight forward, banks consider them pretty low risk because they know they have the right to instantly sell your stock if you breach the loan conditions, it literally takes them 30 secs to shut down your loan if your don't respond to a margin call.

However, if you stop paying your home loan the whole process can take a year for them to recover funds, and requires all sorts of labour on their behalf, so your character, your job security etc etc is of much more interest to them, because its more like a marriage.

Without taking out a margin loan, I would have never known about some of your points @Value Collector
Being able to take the money as cash surprises me.

Value Collector said:

I have used a margin loan with pretty good results in my portfolio, but it is not something that I would recommend to a beginner. Provided you keep your borrowing restricted to small portion of your over all capital base you don't have to fear margin calls.

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I clearly have a lot to learn... I've made nieve assumptions.

What sort of interest rates are charged when comparing to a home loan rate ? (being lazy asking that...)

I believe one can't claim interest charged on the home loan if funds used in trading?
Have I got that right?

Thanks for the info, as I would think there's quite a few stocks (ASX200 stocks?) at the moment that would currently be opportunity/timing suited and having learnt something here, would be willing to revisit the idea with a fresh approach. Cheers.

frugal.rock said:

I believe one can't claim interest charged on the home loan if funds used in trading?
Have I got that right?

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DYOR but as I understand it is the use of funds not source but needs to be clearly traceable.

This is a good read.

I used BT Margin back in the day
here is a list of those on their list of
shares that can be traded

tech/a said:

I used BT Margin back in the day
here is a list of those on their list of
shares that can be traded

Margin lending acceptable securities | BT

Margin lending acceptable securities and LVR for each investment in your loan portfolio.

www.bt.com.au

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Thanks Tech.
Had a quick look, quite a few stocks there I would be happy to lend against in theory.
Would have to find a spreadsheet for the loan to value ratios LVR, anyone know of one available?

On a side note on that list of stocks, no more lending on Afterpay is available. ....

I use Bendigo bank Leveraged Equities.. mainly as it bought the old JB Were book. So I've had a margin loan for 20 + years. Never had a call but always ran it at less than 30% leverage. Got nervous during GFC a bit.. Now down sub 10% .. I see most lending outfits run LVR numbers about the same, ..75 for blue-est of blue chips, 70 for the B team, 50 for mid tier and not much else if there's no track record. CommSec list LVR numbers for each stock as well (in Details for each stock).

The utility of Margin lending is less, I'd reckon, compared to a few years ago. Used to be able to get into floats with one phone call, with JBW.

With the tax deductibility, the interest rate isn't much higher than property. And much more flexible.

frugal.rock said:

Without taking out a margin loan, I would have never known about some of your points @Value Collector
Being able to take the money as cash surprises me.


I clearly have a lot to learn... I've made nieve assumptions.

What sort of interest rates are charged when comparing to a home loan rate ? (being lazy asking that...)

I believe one can't claim interest charged on the home loan if funds used in trading?
Have I got that right?

Thanks for the info, as I would think there's quite a few stocks (ASX200 stocks?) at the moment that would currently be opportunity/timing suited and having learnt something here, would be willing to revisit the idea with a fresh approach. Cheers.

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Interests rate on margin loans will normally be 1% or 2% higher than a loan secured by property, at the moment my margin loan is 1% higher than my home loan.

You can claim a tax deduction for any loan you take out for an income producing venture, if you also used some of those loan funds for personal stuff you need to keep good records about how much of the interest relates to personal vs investment reasons.

so if you have redrawn some funds from your personal home loan, you can claim a tax deduction for that, just try and keep a record of what percentage of the loan was used for investment and claim that portion of the interest.

frugal.rock said:

Thanks Tech.
Had a quick look, quite a few stocks there I would be happy to lend against in theory.
Would have to find a spreadsheet for the loan to value ratios LVR, anyone know of one available?

On a side note on that list of stocks, no more lending on Afterpay is available. ....

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An interesting thing that happened a few years back, I had a large holding in a company called Capilano honey, which Commsec did not have on their list as accepted collateral.

The Capilano shares made up about 70% of my portfolio but didn’t actually add to the collateral for the margin loan, so during a brief downturn in some of my other holdings I got a margin call.

So I phoned Commec and pointed out that I had this huge Holding that they weren’t counting because it wasn’t on the list, and they phoned me back 30mins later and said they added it to the list and would lent 40% against it, which immediately ended the need for a margin call.

it was pretty cool that they were willing to do that, with that boost to the collateral it meant I never had to fear a margin loan again haha.

Margin trading is easy if you've got a market trend. Bull or bear, just throw it in a leveraged etf (in either direction) and just yank some every time it gets called.

It's when you don't have a clear market direction that it becomes a gamble/foolish.

over9k said:

Margin trading is easy if you've got a market trend. Bull or bear, just throw it in a leveraged etf (in either direction) and just yank some every time it gets called.

It's when you don't have a clear market direction that it becomes a gamble/foolish.

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Agree
I can’t see why anyone would remain in a trade without a clear direction
to your benefit for any length of time. ( Consolidation accepted—for a time)

tech/a said:

Doesn't need it’s own thread

let’s say you have $100k and another $100k on Margin

You are prepared to risk 2% $2000.
You want to buy FMG and at the time it’s $20
you Already own other trades taking up 75% of your capital.

Your stop is at $19.50 risking $2000 that means you can buy
4000 shares at $20 —— $80000

you don’t have the money but you can buy the full position
using your margin. $25000 of your money and $55000 on margin.

NO increase in risk! —— Increase in opportunity.

No you don’t buy more with the borrowed funds left over.

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Just to add to this .

if of course you move stops to B/E or you close positions you can re adjust your risk and add positions or add to positions.The key is not to increase risk exposure.
I’m sure you can see how you can do this.