What Does A Margin Loan Cost?
06 Feb 2017
Naturally, the interest rate payable on a margin loan makes a big difference to the return you need to get from your investments in order to break even.
Currently in Australia we have a low official cash rate of just 1.50%, which represents two 25 basis point falls since we last assessed margin lending products. The good news for investors is that margin loan interest rates have, overall, followed the cash rate down – and then some!
Based on Canstar’s analysis of margin loans on offer, investors can currently expect to factor in variable loan interest rates of:
| Average Interest Rates: Margin Loans on Canstar’s Database | |||
|---|---|---|---|
| Loan Amount | Rate Type | Variable Interest Rate | Fixed Interest Rate |
| $50,000 | Min | 5.20% p.a. | 4.70% p.a. |
| Avg | 6.70% p.a. | 6.19% p.a. | |
| Max | 7.18% p.a. | 7.20% p.a. | |
| $250,000 | Min | 5.20% p.a. | 4.70% p.a. |
| Avg | 6.61% p.a. | 6.10% p.a. | |
| Max | 7.14% p.a. | 7.00% p.a. | |
| $500,000 | Min | 5.20% p.a. | 4.70% p.a. |
| Avg | 6.57% p.a. | 6.04% p.a. | |
| Max | 7.12% p.a. | 6.80% p.a. | |
Source: Canstar. Based on rates as at 1 January 2017. |
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Investors will be pleased to note that interest rates have being going down over the past few years. Since 2016, variable rates have decreased by 0.32% for a $500,000 loan and by 0.35% for a $50,0000 loan, and fixed rates have decreased by 0.21% for a $500,000 loan and by 0.29% for a $50,000 loan.
| Changes In Variable Interest Rates Over Time | |||||
|---|---|---|---|---|---|
| Loan Amount | 2013 | 2014 | 2015 | 2016 | 2017 |
| $50,000 | 8.28% | 7.78% | 7.58% | 7.14% | 6.80% |
| $250,000 | 8.23% | 7.73% | 7.51% | 7.04% | 6.72% |
| $500,000 | 8.18% | 7.70% | 7.55% | 6.99% | 6.69% |
Source: Canstar. Based on average variable rate as at 1 February of each year. |
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As the table above shows, the average margin loan interest rate has declined more significantly over the past 12 months than the reduction in official cash rate.
Online lenders continue to drive competition
This large decline can largely be attributed to online margin loan lenders, such as Leveraged, nabtrade, and Westpac, who have been able to increase competition with their extremely low variable interest rates. But it’s not just about low prices when it comes to online lenders. These three lenders have supplemented their low rates with great features and have therefore received our 5-star rating for outstanding value in 2017.
As with home loans, it pays to shop around when it comes to a margin loan. Canstar’s assessment has found that the current market leader for the providers assessed in 2017 is significantly cheaper – 1.50% cheaper, in fact – than the market average.
Fixed or variable rate margin loans?
The majority of visitors to Canstar’s margin loan comparison tables search for a variable rate loan (76%), with fewer visitors searching specifically for a fixed rate loan (24%). But that may be about to change, because this year we can see that fixed interest rates are cheaper across the board for investors than variable interest rates.
Overall, current variable rates on Canstar’s database for a loan amount of $250,000 vary from a low of 5.20% p.a. up to 7.14% p.a.
Variable interest rates on offer
| Loan Amount | Traditional Lenders | Online Lenders | Difference in Avg | ||||
|---|---|---|---|---|---|---|---|
| Min | Max | Avg | Min | Max | Avg | ||
| $50,000 | 6.73% | 7.28% | 7.04% | 5.30% | 7.09% | 6.28% | 0.76% |
| $250,000 | 6.73% | 7.22% | 6.98% | 5.30% | 7.09% | 6.13% | 0.85% |
| $500,000 | 6.73% | 7.22% | 6.94% | 5.30% | 7.09% | 6.08% | 0.86% |
Source: Canstar. Based on average variable rate over a 6 month period of assessment. |
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Fixed interest rates on offer
For borrowers looking to “fix” their margin loan, fixed rates at the time of writing vary on the Canstar database from a low of 4.70% p.a. for a 12-month fixed rate payable in advance, up to 7.05% p.a. (based on a $250,000 loan). So again – it pays to shop around!
| Loan Amount | Traditional Lenders | Online Lenders | Difference in Avg | ||||
|---|---|---|---|---|---|---|---|
| Min | Max | Avg | Min | Max | Avg | ||
| $50,000 | 5.25% | 7.20% | 6.52% | 4.70% | 7.05% | 5.78% | 0.74% |
| $250,000 | 5.25% | 7.05% | 6.46% | 4.70% | 7.05% | 5.63% | 0.83% |
| $500,000 | 5.25% | 7.05% | 6.39% | 4.70% | 7.05% | 5.58% | 0.81% |
Source: Canstar. Based on average fixed rate over a 6 month period of assessment. |
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What fees are charged on margin loans?
The fees investors can expect to see charged on margin loans include the following, with average fees calculated as of 1 January 2017:
| Average Fees | |
|---|---|
| Fee Type |
2016-17 |
| Application Fee – Individual | $0.00 |
| Application Fee – Company | $63.50 |
| Application Fee – Trust | $138.46 |
| Company Search Fee | $9.93 |
| Company Payout Release Fee | $11.50 |
| Cash Advance Fee | $0.00 |
| Low Balance Penalty Fee | $1.54 |
| Lodge Security – Managed Fund Fee | $0.00 |
| Dishonour Cheque Fee | $6.81 |
| Bank Cheque Fee | $2.88 |
| Direct Debit Dishonour Fee | $12.69 |
| Early Repayment Fee* | $37.50* |
| Listed Share Transaction Fee | $0.00 |
| Fee on any cash movement | $0.00 |
Source: Canstar.
*Note: 6 of the 14 products rated in 2016 did not specify a dollar fee and charge a break cost. Averages taken across products rated each year, with the number of products varying from year to year.
How have fees changed recently?
Much like interest rates, the fees on margin loans have been decreasing over the past few years:
| Average Fees | |||||
|---|---|---|---|---|---|
| Fee Type |
2013 | 2014 | 2015 | 2016 | Change 2013-2016 |
| Application Fee – Individual | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
| Application Fee – Company | $73.63 | $73.63 | $58.90 | $63.50 | -$10.13 |
| Application Fee – Trust | $127.13 | $127.13 | $101.70 | $138.46 | $11.33 |
| Company Search Fee | $89.83 | $89.83 | $13.90 | $9.93 | -$79.90 |
| Company Payout Release Fee | $8.13 | $8.13 | $0.00 | $11.50 | $3.37 |
| Cash Advance Fee | $1.25 | $1.25 | $1.00 | $0.00 | -$1.25 |
| Low Balance Penalty Fee | $2.50 | $2.50 | $2.00 | $1.54 | -$0.96 |
| Lodge Security – Managed Fund Fee | $1.25 | $1.25 | $0.00 | $0.00 | -$1.25 |
| Dishonour Cheque Fee | $8.63 | $8.63 | $6.00 | $6.81 | -$1.82 |
| Bank Cheque Fee | $0.94 | $0.94 | $0.75 | $2.88 | $1.94 |
| Direct Debit Dishonour Fee | $8.63 | $8.63 | $6.00 | $12.69 | $4.06 |
| Early Repayment Fee* | $114.29 | $114.29 | $30.00 | $37.50* | -$76.79 |
| Listed Share Transaction Fee | $1.25 | $1.25 | $1.00 | $0.00 | -$1.25 |
| Fee on any cash movement | $1.25 | $0.00 | $0.00 | $0.00 | -$1.25 |
Source: Canstar.*Note: 6 of the 14 products rated in 2016 did not specify a dollar fee and charge a break cost.
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Compare the cost of margin loans we researched and rated for the 2017 Margin Loans Star Ratings:
Canstar is an information provider and in giving you product information Canstar is not making any suggestion or recommendation about a particular credit product. If you decided to apply for a loan, you will deal directly with a financial institution, and not with Canstar. Rates and product information should be confirmed with the relevant financial institution. For more information, read our detailed disclosure and our Financial Services and Credit Guide (FSCG).
