Margin loan vs. LOC

[rozella]

Re: Margin loan vs LOC

G'day transit,

Just think of a margin loan as another word for a real estate loan......it is done the same way except the lender has different lending ratios for each stock which is available on their list.

If you wanted to buy a house & you had $50,000, then the lender would probably lend you the balance at 80% of valuation. i.e. your deposit would be $50,000 & you could purchase a house worth $250,000. If the value went up substantially & you saved a bit more, then you may want to buy another house, so then both houses are revalued to see whether your equity would be sufficient to do the deal.

Marginlending is the same, if you have $50,000 (nomatter whether it came from LOC or savings), you could buy $166,666 of stocks provided they averaged a LVR of 70%, & as they go up in value, you will have addional equity to buy more. Margin loans are normally open ended, meaning no limit to the borrowed amount provided that the equity is there.

 

[transit]

Re: Margin loan vs LOC

Yes, you're wrong, which is good for you

Commsec will loan you 70%, you provide 30%.

That means Commsec will loan you $116k on your $50k, and you can buy $166k worth of shares.

Thanks Moses, that sounds much better
My confusion was with the way the LVR is calculated. I had $45k of MF's transfered to them and i thought i could get a margin loan of max $30k (based on 70% of 45k). So i called commsec and asked the guy about increasing my margin loan. He said no worries and i've now increased it to $150k

G'day transit,

Just think of a margin loan as another word for a real estate loan......it is done the same way except the lender has different lending ratios for each stock which is available on their list.

If you wanted to buy a house & you had $50,000, then the lender would probably lend you the balance at 80% of valuation. i.e. your deposit would be $50,000 & you could purchase a house worth $250,000. If the value went up substantially & you saved a bit more, then you may want to buy another house, so then both houses are revalued to see whether your equity would be sufficient to do the deal.

Margin lending is the same, if you have $50,000 (no matter whether it came from LOC or savings), you could buy $166,666 of stocks provided they averaged a LVR of 70%, & as they go up in value, you will have additional equity to buy more. Margin loans are normally open ended, meaning no limit to the borrowed amount provided that the equity is there.

Thanks for the great explanation rozella. As mentioned, my maths suck! Now i finally realise the formula is 50k * 70% = 35k; and the 35k / 30% = $116k.

Cheers for helping the n00b through this basic exercise