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Margin Loans Margin Calls & Buffers

Discussion in 'Finance & Banking' started by Chris C, 31st Oct, 2008.

  1. Chris C

    Chris C Well-Known Member

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    I was just wondering if I was to take out a margin loan with a lender that has a maximum LVR of 70% for a particular share with a 5% buffer, and I was to buy $1000 worth of those particular share but was only to take out an LVR on those shares of 50%. Would I receive a margin call if those shares were to drop by 5% or would they need to drop to the point where the LVR was 70% plus the 5% buffer before I got a margin call?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The latter.

    LVRs are calculated on your whole portfolio (assuming you hold more than one share/fund with that lender). Once you get to a 70% LVR overall, you will generally get a warning from your lender that you are "in your buffer zone", and if you then experience a further 5% (although sometimes 10% buffer is offered) drop in market value, you will receive a margin call.

    Have you read my article: http://www.invested.com.au/86/how-margin-loans-work-3106/ ??
     
  3. Sacko

    Sacko Well-Known Member

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    Many of the Margin Loan providers also have a minimum loan value, eg $20k for Leveraged Equities
     
  4. Chris C

    Chris C Well-Known Member

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    I have read parts of it before, but I will have to go back and read it in entirety.

    The above figures I used were just for illustration purposes.
     
    Last edited by a moderator: 3rd Nov, 2008
  5. Chris C

    Chris C Well-Known Member

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    So am I right in saying that I'd be better off going with a lender that offered a maximum LVR of 75% on a particular share with a 5% buffer, than with a lender that is offering a maximum LVR of 65% with a 10% buffer, assuming all other things are equal and that I planned to take out a LVR of 60%?
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Assuming all other things are equal (which they usually aren't) ... then yes - always go for the highest overall LVR that you can (just don't be tempted to gear more highly as a result - it's just there for buffer).

    Depending on how often you transact on your account (new investments / redemptions etc), then customer service does start to come into the equation ... I found St.George to have an excellent product, but their customer service was nowhere near as good as I was getting at LevEq.
     
  7. Chris C

    Chris C Well-Known Member

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    I personally was thinking about going with Comsec because my loan and bank accounts are with the commonwealth in addition to the fact that they are presently offering the cheapest interest rates, and given the current climate I imagine that they will probably be one of the lenders that is able to drop rates the lowest and in the most timely fashion.

    Though I'd be interested to hear what others think about Comsec's margin lending services.