Margin Lending - the good, bad and the ugly.

Margin loans are simply an investment loan that is secured against the assets you are purchasing, such as shares and managed funds.   You don’t need to sign over your house and that is why so many people like them.    However, investors can get into trouble if their investment falls below a certain level, known as the loan to valuation ratio (LVR).

You may have heard of margin calls.   When these happen, investors are in a bind.  They can either sell down their investment to restore the LVR,  in other words forced to crystalize losses, or have to find the funds to top it up.  What a tough decision to make in this current economic climate.  You could be buying bargains, or perhaps throwing good money after bad.    Some institutions also allow you to assign other assets.  Read more