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Margin Loans Steps to set up a marginal loan?

Discussion in 'Finance & Banking' started by KP, 19th May, 2007.

  1. KP

    KP Member

    Joined:
    18th Mar, 2007
    Posts:
    12
    Location:
    Sydney,NSW
    I understood it is done as:

    "I select a mix of shares and take the list to the bank, they calculate the market value and come up with my contribution amount and their contribution amount depending up on the % of leverage i decide.Then they setup the account and provide me with the money, i go and buy the shares as decided before.And the loan starts its life.."

    Am i missing something here?I was told by a financial adviser that i need to have the shares before i can secure them for loan.(its like buying house before applying loan..:confused:)

    Please tell me the steps involved in setting up the marginal loan.

    Thanks

    Kiran
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
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    Location:
    Sydney, Australia
    Depends - you don't necessarily need the shares first. If you already have them, great - if not, you just need some cash.

    With most margin lenders, the loan amount isn't fixed (unless you go fixed interest for the entire amount), if you have the "margin value" available, you can just keep borrowing until you reach your limit (although better to not borrow to your limit - keep a larger buffer to avoid margin call).

    Most lenders have a minimum loan of $20,000 ... but the maximum will only depend on the value of your portfolio (or the amount of cash you can put in).

    You need to decide what LVR you are comfortable with, and you need to check the maximum LVR offered by your margin lender for the shares/funds you want to invest in.

    I'm going to assume you have a 70% max LVR on offer for your proposed portfolio ... so you might choose to gear to 50% to give yourself a good buffer.

    50% LVR means that if you borrow $25,000, you must put in $25,000 of your own money as well ($50,000 to invest).

    Alternatively, if you had decided to go 60% LVR, you would only need to put in $20,000 of your own money to borrow $30,000 (total portfolio = $50,000, LVR = $30,000/$50,000 = 60%)

    If you have shares/funds already, you need to work out their margin value when you transfer them into your margin account - that will determine how much you can borrow against them.

    Think of it like owning a PPOR before using the equity to buy an IP.
     
  3. KP

    KP Member

    Joined:
    18th Mar, 2007
    Posts:
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    Location:
    Sydney,NSW
    Thanks for the reply

    Hi Simon,

    Thanks for the detailed reply.

    Kiran