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Here’s just one example how prepaying the interest on your margin loan before June 30 could save you money...
Robert has an investment portfolio of $180,000 with a borrowed amount (margin loan) of $90,000. On 1st March he decides to prepay 12 months of interest on his margin loan instead of paying a variable rate at the end of each month.
By choosing to prepay, not only does Robert lock in an interest rate for the next 12 months, he’s also more than $2,000 better off than if he’d chosen to pay his interest one month at a time.*
| Loan details | Without prepayment | With prepayment | Saving |
|---|---|---|---|
| Investment amount | $180,000 | $180,000 | - |
| Margin Loan amount | $90,000 | $90,000 | - |
| Interest expense for financial year | 4 months variable interest ($2,753) |
12 months fixed interest ($8,010) |
- |
| Investment income for financial year | $2,400 | $2,400 | - |
| Equals net tax deduction for financial year | ($353) | ($5,610) | - |
| Tax saving for financial year | $146 | $2,328 | $2,182 |
*Assumptions: Results are net of tax and borrowings with no change to the prepaid loan balance. Variable interest rate 9.15% pa non-compounding, prepaid interest rate 8.90% pa. Capital growth of 4.5% pa and distribution yield of 4.0% pa. Marginal tax rate including Medicare levy 41.5%. Margin loan drawn down 1 March. Portfolio is geared at 50%.
This example is for illustrative purposes only and should not be relied upon as an indication or prediction of future results.