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Margin Loans Margin Loan Structure & IPs - Are there issues with Cross Collateralisation?

Discussion in 'Finance & Banking' started by Gem16, 27th Sep, 2007.

  1. Gem16

    Gem16 Member

    Joined:
    14th Sep, 2007
    Posts:
    10
    Location:
    Brisbane
    Hi all,
    We avoid cross collateralising our PPOR & investment properties by chosing a different lender for each property. We currently do not have a share / managed fund portfolio, but are looking into the possibilities of investing in the future.

    Hypothetical:
    If PPOR loan is with St George & we take out a margin loan with St George to purchase units in a managed fund:

    (1) Is this technically cross collateralising?....even though they are different types of assets?

    (2) In the event of a margin call, could St George potentially use the equity in the PPOR to recover the loss?

    (3) Do forum members use a different margin loan lender to the lenders that are used for their PPOR & investment properties?

    Thanks
    G
     
  2. Here_To_Learn

    Here_To_Learn Well-Known Member

    Joined:
    15th Aug, 2005
    Posts:
    315
    Location:
    Sydney
    OK - let me try and answer.

    1) In my view it's not cross collateralising. The Margin Lender will use the shares as the collateral not your PPOR.

    2) Don't think so.

    3) Yes - we use a different lender for our Margin Loan. We were able to negotiate a much better rate despite our large 'good' debt.:)
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Not directly, but if the loans became delinquent (or if the market crashed and the share value fell to less than the outstanding margin loan amount - well beyond "margin call" territory), I'm sure you'll find an "all monies" clause in your loan contract somewhere, which (from my understanding), means they will take whatever else you have and apply it to the loans.

    It may not be as simple or as bad as that - but you should check the loan contracts carefully (both the IP and the margin loan) just in case !!!
     
  4. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi Gem,

    Like the others had said:

    1) No. St George margin lending dept is different to St George property loan dept. Though if you had the Advantage Package with them you could secure the shares against your property and not have the issues with margin lenders, eg, marking to market, different LVRs for different shares, etc. You'd also get the home loan rate which is probably 1.5% cheaper.

    Colonial/CBA also have a product which wraps it all up but it's not as clean as the normal home loan plus a few sub accounts for investing,etc. Also their rates aren't that crash hot. They were standard rates with no 0.7% off, which most lenders who are competitive are giving.

    2) A Margin Call is not a loss. It's highly doubtful that they would sell your house for a margin call. They'd probably get you to pull equity out of your home loan before selling your house.

    3) I just bought a house and cashed out my profits to raise the deposit. I do have the St George Advantage package so I am more inclined to use this than a margin lender to buy shares. Saying that, internally geared managed funds also float my boat and they can be an easier way of gearing (sometimes).

    Like Sim said check the two contracts out with a comb to see what your liability is and if your still not sure you can speak to a lawyer.

    Cheers,

    Dan