Margin loans

Many investors would like to increase their exposure to the sharemarket – yet lack the funds to do so Margin lending can be a simple and flexible ‘gearing’ option. Gearing your investment increases your potential gains because you reap returns on money you have borrowed from someone else as well as your own money.

Margin loans are designed to fund investments, where the underlying security is a portfolio of lender approved shares or lender approved managed funds. Be aware that these loans are subject to call should the value of your portfolio fall outside the prescribed ratio.

As you will see from the way they work, margin lending is something that you should only enter into with good advice from your financial planner and accountant.

How are margin loans available?

The combinations for the various margin loan options are the same as for their residential secured counterparts, but three main types of margin loans are available from most lenders:

• Variable Rate (similar in operation to a Line of Credit facility).
• Fixed Rate – Interest Only – Monthly in Arrears
• Fixed Rate – Interest Only – Annually in Advance

Margin lending is most commonly used

• Where you are not comfortable in having your residential property securing such an investment
• Where you simply don’t have enough equity in your property but still have the cash flow to service additional investment debt.

How do margin loans work?

Fundamentally, margin loans operate as a loan secured against a share or managed fund portfolio, where the lender is protected from falls in the security value by utilising a technique referred to as a margin call.

What is a margin call?

Lenders want to be sure that the value of an investment portfolio well and truly covers the amount borrowed to finance it. When the value of your portfolio drops too close to the value of your loan, the lender may step in and make a ‘margin call’.

More information on personal wealth or margin lending?

If you would like more information on Margin Lending, or borrowing for wealth, residential or commercial investment, call us on 13 LOAN. If you are calling from overseas, call us on +61 2 9249 3739 or simply click here to confidentially talk to a finance broker about your options.