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Saturday, 18 November 2006

My Investment Loan Interest Rates

While asset allocation is probably the most important factor in your long term investment performance, and fees and charges the second mosst significant item, the interest rate you pay on any investment borrowings are also a major consideration. A few percentage points extra can mean the difference between the use of gearing adding to or reducing your ROI. There can be considerable differences in the interest rates charged by different lenders, so it pays to shop around. Also, there may be price breaks from larger loan balances, so this is a time when diversifying between different lenders can be counter-productive. My investment borrowings are a bit of a mish mash, due to changes in investment stratgey over time, and using new lenders (at cheaper rates) for new investments, while keeping the old accounts in order to not realise capital gains just by shifting assets between accounts.

My investment loans:

Property
$230,602.65 @ 7.37% - home loan (non-deductible) - variable rate
$118,250.00 @ 7.09% - rental property loan (deductible) - fixed rate (5 yr term)
Shares - AU - three margin lending accounts
$19,474.16 @ 8.85% - St George Margin Lending (St George Bank) - variable rate
$12,042.90 @ 8.90% - Commonwealth Securities (Commonwealth Bank) - variable rate
$82,065.38 @ 7.95% - Commonwealth Securities (Commonwealth Bank) - fixed rate (1 yr term)
$150,000.00 @ 8.25% - Leveraged Equities (Adelaide Bank) - fixed rate (1 yr term)
$5,607.76 @ 9.15% - Leveraged Equities (Adelaide Bank) - variable rate
Shares - US
$59,175.20 @ 7.09% - St George Portfolio loan (secured against property) - variable rate
Other
$ nil @12.99% - Citibank*

* This Line of Credit is used to capitalise margin loan interest prepayment in June, and is then paid off with my tax refund in November.

Overall, the interest rate on my property loans currently averages 7.275%, and the interest rate on my stock portfolio loans currently averages 8.041%. The use of 1-year prepaid interest fixed rate loans helped lower the overall interest rate, as the Reserve Bank has raised rates a couple of times since June. The opportunity cost of prepaying interest for a year can be ignored as prepayment brings forward the tax deduction for the interest payment.

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