Margin Loans Margin Loan - Would this lower my LVR?

Example:

Chewbacca has a portfolio value of $10,500. And gets out a margin loan of $24,500. (70% LVR)

This gives him a regular buffer of 10%.

If Chewy were then to buy another $5,000 worth of shares a couple of months down the track, bringing his portfolio value up to $40,000. ($15,500 his own equity and $24,500 margin loan)

Would this bring his LVR down, and give him a bigger buffer?

 

Hi Sketch,

Yes, this additional share purchase will bring Chewy's LVR down. You are providing more security for the loan, with the same loan amount.

New LVR will be 24500 / 40000 (x100) = 61.25%

At the same time this will give Chewy a bigger buffer also...shares will have to fall by 12.5% (40K down to 35K) to bring the LVR back to the original 70%. He would also then have the 10% buffer on top of that...

Hope this helps, Chris

 

Indeed... Thanks heaps chris, you have made chewy a very happy ma... umm hairy thingymuhbob.

 

You cannot just buy the shares. You have to transfer them to the margin lender so they can take security over them if you want it to reduce your LVR.

 

Ok... so lets say chewy the ewok (thank you sim) has a commsec account. And say his margin loan was with Suncorp. How would he transfer the new shares he purchased on commsec to suncorp?

ps: On another note, would this mean that chewy couldn't log into commsec and monitor his shares?

 

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