What is a margin loan?

By adding borrowed money to your own funds, you can have access to more funds for investing. Once invested, this can provide you with the opportunity to increase your returns if the value of your portfolio increases.

If you want to take advantage of investment or market opportunities a margin loan can provide you with immediate access to additional funds.

It means you don’t have to sell your existing shares to purchase additional shares.

Diversification spreads the potential risks of your investments.

A margin loan can enable you to diversify your portfolio by providing increased buying power over a wider range of shares or investments. This can help to potentially reduce risk.

A margin loan can form part of a strategy to provide potential tax efficiencies. For instance:

• Interest incurred on your loan may be tax-deductible.  If you’re in a position to do so, you could bring these deductions forward by up to 12 months by pre-paying the interest component of your margin loan.
• You can utilise company, trust and third-party security structures to suit your circumstances.
• And, with companies often paying franked dividends, you could benefit from the tax already paid by a company.

Maximising the after tax return of your investment is something worth considering. However, tax efficiencies should not be the main reason for choosing a margin loan.

Like any investment, you should speak with a financial planner or tax adviser to see how the taxation rules apply to your own situation.

Generally there are no set repayments, as long as you maintain the required level of equity in your account. Plus the interest can be prepaid or paid monthly.

• You may like to use your dividends to help offset interest expenses.
• Repayment of the amount owing is required when you close the account.
• A repayment may be required if your shares or managed funds do not provide enough security against the amount that you have borrowed.

With the rising cost of real estate, successfully gearing property is becoming more difficult.

Using a margin loan to fund share investments or managed funds may prove to be a better strategy to reach your long-term financial goals for the following reasons:

• You don't need to own real estate to get a margin loan.
• Your loan can grow with your portfolio value.
• Fees on a margin loan are minimal.
• A margin loan can help you monitor risk, as margin calls act as timely reminders to review your portfolio.

A variable rate loan acts like a line of credit. You can draw down when you need it, or repay part or all of the loan if you sell securities or receive dividends. The interest rate charged on your loan may change depending upon market movements.

A fixed rate loan could give you greater peace of mind because your interest payments are 'locked-in' and you don't need to worry about interest rate rises for the term of the loan. The interest rate is usually less than a variable loan, and as an added benefit, you may be able to claim all of the interest expense as a deduction in the current tax year.

ANZ offers a wide range of fixed loan terms, from 3 months to 5 years. You can choose to:

• pre-pay interest in advance
• pay the interest monthly in arrears.

It is important to note that prepaid interest is not refundable and break fees may apply if the loan is paid out while in a fixed rate period.