margin call when property price drop?

Unlikely.

The political fallout of with the banks attempting this would be too high. Cue 60 minutes, current affair and the like doing profiles of hard working mum and dad making repayments diligently and the bank demands cash to cover their on-paper loss. Also, you would have the Treasurer of the nation berating the banks every night on the 6 PM news with the opposition calling for a royal commission. The banks can be very sensitive to how they are perceived by the general public.

If there is an economic Armageddon, who knows?! But under normal conditions it is a bit hard to envisage.

 

Quote..

1. 'The position with an all-monies mortgage is that once payments are missed under the terms of the mortgage, a formal demand for payment of the full balance is sent to the Defendants. There is no discretion in the mortgage to make an arrangement to pay off the arrears by instalments. Effectively, if a demand is served for full payment then full payment should be made or possession could be sought. In relation to the possession proceedings and the court hearing, the court does not in such a situation have the discretion to make what is known as a suspended possession order. Effectively the court will be duty bound to make an order for possession provided that the relevant demand had been served and the possession proceedings had been brought appropriately. The discretion available to the court in housing cases under the Administration of Justice Act does not apply in all-monies cases. It is inevitable that, at the court hearing, an order for posession would be made. The general period for possession is 28 days, but this can be extended in exceptional circumstances.'

 

Yeah no my friend was making all her payments. Some of you guys sound like you came down in the last shower - and you're brokers?

 

That's why i do commercial and residential lessors interest now
Some tenants have invested a lot money in their properties ...so it is unlikely they will ever leave....if they do leave they lose the leasehold improvements

 

This is a standard residential mortgage?

 

I highly doubt this is all there is to the story.

Because if this is true, get your friend to go to the media. Reveal it.

Do you find it credible that a bank would demand full payment of a residential mortgage that was up to date?

 

Not an Australian clause; not about margin calls.

See: All monies on clause mortgages

 

Yes. The Ts&Cs cover several different loans but they're all residential mortgage products.

 

I don't practice in the area of mortgage law, but there appear to be many errors in this quote and I am not sure how it is relevant to this topic.

 

"all moneys" case law from Australia. I would need someone to translate it into English

"All Moneys" clause win for the Bank

 

There is already a legal tip about this!

Legal Tip 130: What is an All Monies Clause?

 

Just thought i would bring this up Terry..I had a mate late 1996 4 kids private school wife stay at home ,they had 2 rentals plus a ppor,they went through a bad period in his legal business,..The bank they were with bought in a new manager into the area and gave them 2-3 months to fix the problem,i know a few that that happened too,different story these days,but the all money clause will be in the contract somewhere..

 

From Investopedia:
What is a 'Margin Call'
A margin call is a broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when the account value depresses to a value calculated by the broker's particular formula.

An investor receives a margin call from a broker if one or more of the securities he had bought with borrowed money decreases in value past a certain point. The investor must either deposit more money in the account or sell off some of his assets.

Read more: Margin Call Definition | Investopedia Margin Call

Um yeah no, she was required to come up with a larger payment to reduce LVR. I can't remember exactly but I did quiz her and she is very honest. I'd just bought my first property and that's why she asked if the same had been requested of me.Not sure whether she made the payment or the repayments were increased.
She was too busy starting up a new and very successful business and just did it. But we were all surprised. Happens.
Banks are not there to make friends.

 

I have a few old mortgage contracts from early 1990 that i have kept ,i have a look where that clause is,and you are right that not an Australian no contract is perfectly transparent..

 

Keep in mind a margin call doesn't really help the bank. If they call in your loan due to a price drop, they're probably going to loose money.

As long as you continue to pay the mortgage, they're getting what they originally signed up for, which is to make a tidy profit over the next 30 years.

Under these circumstances it's incredibly difficult to refinance. From a certain perspective this type of loan can be very profitable for the bank.

 

Nevertheless, their primary concern is to make sure they don't go under. Individuals don't matter to them. Cheaper and less harmful to make a make a margin call than reposses which involves evicting people from their homes.
This used to happen a lot not that long ago.
Anyone who doesn't think it can happen needs to wake up and smell the coffee.

 

OK, so if my account is just Offset account and with Interest Only (no LOC) does that means I'm not subject to Margin call when I cannot afford to service the debt due to no income ?

Or if anyone here know what type of loan is safe from margin call, please share it here.

Thanks,

 

Have a read of the terms and conditions that would have been provided with your loan - it will all be laid out there.

Whilst I have not read every banks Ts&Cs I would hazard a guess that there would be a similar clause in all of them.

 

Best thing to do is make sure you have a 20% deposit - which you kinda hafta now because of APRA. Looking back, I think my friend used the fhb $7K for her deposit and not much else.
If you had a 15-20% deposit and started off putting extra into offset, redraw or P&I (offset is more modern and the most flexible for you), you would be well-covered.

 

But margin call and broker in the above is all in regard to shares.

@WattleIdo I am not sure what happened to your friend, but either the lender was doing something odd, or there is more going on possibly.