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”.
Stocks: Shares.