Latest in Margin Loans
Investor Hub - May 28th
The Ins and Outs of Investing with a Margin Loan
Most people would be familiar with the concept of borrowing to invest, after all, many Australian do just that when they buy a house. However, taking out a loan to invest in shares, managed funds and other securities is a little different - here’s how it works.– Read more
What is a margin loan?
A margin loan lets you borrow money to invest in shares and managed funds. This means you can invest more money than otherwise, so your invested funds are leveraged or geared to work harder. On the other hand, a margin loan also has the potential to magnify your losses if your stocks or funds lose value, because you still have to repay the full loan plus interest.
How do margin loans work?
When you take out a margin loan to buy shares, the lender’s security is in the shares you own. So the lender has the right to sell your shares to repay the loan if your shares lose too much value, you are unable to pay off your loan, or you fail to pay a margin call.
This is a lot to do with your ‘LVR’ or loan-to-value ratio (a.k.a. loan-to-valuation ratio). When a loan is being used to invest in something that is the security for the loan, lenders will only lend a percentage of the purchase price of that investment. If your LVR is too high, this will trigger a margin call.
Author: Nina Tovey
As Canstar’s Editor-in-Chief, Nina heads up a team of talented journalists committed to helping empower consumers to take greater control of their finances. Previously Nina founded her own agency where she provided content and communications support to clients around Australia for eight years. She also spent four years as the PR Manager for American Express Australia, and has worked at a Brisbane communications agency where she supported dozens of clients, including Sunsuper and Suncorp.
Nina has ghostwritten dozens of opinion pieces for publications including The Australian and has been interviewed on finance topics by the Herald Sun and the Sydney Morning Herald. When she’s not dreaming up ways to put a fresh spin on finance, she’s taking her own advice by trying to pay her house off as quickly as possible and raising two money-savvy kids.
Nina has a Bachelor of Journalism and a Bachelor of Arts with a double major in English Literature from the University of Queensland. She’s also an experienced presenter, and has hosted numerous events and YouTube series.
How Canstar rates margin loans:
Every year, Canstar researches and rates providers of margin loans to compare how they perform for two distinct profiles of investors who may be interested in taking out a margin loan:
- Share Investors
- Managed Fund Investors
When it comes to choosing a margin loan, you should definitely compare your options and shop around. Since margin loans carry a significant financial risk, you need to look for a great value loan that suits your needs.
To a certain extent, value for money with a margin loan depends on how much and how often you invest. Margin loan borrowers should also look for a low price and features that make their loan more easily manageable.
Compare cost of margin loans
The first thing most people consider when choosing a margin loan is simply their trading platform, but the interest rate charged on a loan makes a big difference. With the official cash rate dropping, interest rates on margin lending have also lowered significantly over the past few years. Find out the current interest rates in Canstar’s latest margin loan star ratings.
Compare features of margin loans
Price isn’t the only factor to consider, of course. Visitors to Canstar’s margin loan comparison tables frequently search for features such as the ability to use international shares as security and being able to sell/short put options.
Canstar also considers the following features that affect the value of a loan:
- Time limit for paying a margin call
- Minimum and maximum credit limits on the loan, and what types of security may be used
- Availability and cost of trading in different types of investments
- Whether the loan is available directly through the trading platform
- Availability of cash advances, progressive drawdowns, and flexibility
- Repayment options and restrictions
- Ability to switch the loan between managed funds
- Availability of advisor services for client information and advice
Another interesting feature to look at is the number of ASX stocks that can be used as acceptable securities with the various margin lending providers.
Learn what to look for in a margin loan and how to compare margin loans here. Or for more details about the way we rate various features, read the methodology in our latest margin loans star ratings report.
Go to the top of this page to compare margin loans, or find out more about margin loans in our latest star ratings report:
Margin Loan Glossary Of Terms
Please note that these are a general explanation of the meaning of terms used in relation to margin loans. Loan policy wording may use different terms and you should read the terms and conditions of the relevant lender to understand the inclusions and exclusions with that loan. You cannot rely on these terms to the part of any loan you may take out. You should refer to the product disclosure statement (PDS) for the relevant margin loan.
For further terms used in relation to share trading, see our Online Share Trading glossary of terms.
Approved securities:A lender’s list of securities (shares and managed funds) against which they are willing to lend money. A maximum LVR will be assigned to each approved security.
Asset:A resource that is controlled by a person because they own it or own an interest in it.
Brokerage: Fees you pay a stockbroker for them to buy or sell shares for you.
Buffer:Lenders will generally allow your LVR to exceed your limit by a certain percentage before making a margin call. The buffer is typically 5% to 10% above the maximum LVR.
Equity access loan: A margin loan that allows an investor to use a portion of the credit limit in their home loan (their “equity”) as security for their investment borrowing.
LVR (Loan to Value Ratio or Loan to Valuation Ratio): The amount you can borrow, represented as a percentage of the value of the property you are buying, which is being used as security for the loan.
Margin call: An order from your broker or your lender for you as an investor to pay the difference between the value of your stocks and the balance of your loan. This amount can be paid by cash or by transferring stocks into your portfolio, but if you cannot pay, your broker or lender will sell your stocks to pay the amount. A margin call is made at the end of trading if your stocks’ value has fallen below the amount of your loan balance plus your borrowing buffer amount.
Negative gearing:When the income produced by the investment (dividends from shares) is less than the interest being paid on the loan used to buy the investment. This is usually an available tax deduction.
Security: An asset that is offered as insurance or a guarantee to pay the loan. A loan may be secured or unsecured. In the case of margin loans, the security for a secured loan is usually the investor’s share or managed fund portfolio. If a borrower cannot repay the loan or meet a margin call, the lender has the right to sell the secured shares or managed fund portfolio as payment.
Shares: A portion of the ownership rights to a company. Shareholders receive a portion of the profits if the company does well, in the form of dividends. However, if the company does poorly, the shareholder has effectively lost money. Also known as a company’s “stock”.
Margin loan providers Canstar rates:
The margin loan providers we research and rate can be seen by comparing margin loans using the tool at the top of this page. The following list is current as at March 2017:
- CommSec and CommSec Adviser Services
- Macquarie Bank
- Suncorp Bank
Compare margin loan providers using the comparison tool at the top of this page.