(2) is a good idea, cheers. I'll look in to it. Are you able to explain further how you got <5.5% margin loan? That sounds very desirable!
When interest rates go back up, i'll pay back the mortgage. I am wagering that franked dividends + unrealised capital gains will be higher than 7.4% pretax. What do you think about that wager?
For the interest rates, by negotiating hard. Trade them all off against each other. Much better done by phone than by email too. I don't enjoy the process, but each time I've done it its been time well spent. Take your best rate you can find to a lender, and see if they will beat it to win your business. If they do, use this as the next benchmark to beat. My margin loan is currently $500k, so perhaps a bit of scale to get them interested in negotiating?
As for your wager, I've been geared into stocks for the last 7 years, so I'm a believer in this approach. However, I'd note that my gearing is currently at its lowest level of the 7 years at the moment, and with cash and cash equivalents held in a trust, I'm effectively ungeared right now. I'm taking this stance because:
- I feel that markets are not as good value at the moment as they have been (market timing of leverage)
- I have a fair bit of cash tied up waiting to be paid to me over the next two years from the sale of a business, so I'm less liquid than I would appear
- I'm shopping around for a primary place of residence, as I'm currently 0% residential property.
- As my portfolio has grown, I've become more conservative, and less prepared to risk total wipeout.
That said, my average yield (including franking) covers my interest rate. I reckon long term that there will be some capital gain, but I'm also OK with losing 25% next year.
One option you may want to consider, which I've used, is to leverage up in your own name (deductible interest), but invest through a trust structure (gets the earnings into a different tax entity). Has some up-front costs, but if you are investing significant $$ over the next decade, may be a better long term structure for you.