Margin Loans Margin Loan and Serviceability

How do banks assess serviceability for a residential mortgage when an applicant has a margin loan i.e. how do they account for the interest payable?

For example, you may have a $250k limit on your margin loan but only $50k drawn, which amount do they calculate interest on? Do they add 2-3% onto the interest rate to account for future rate rises? Is serviceability calculated the same way regardless of what form of credit you're applying for (residential mortgage, margin loan etc)?

CFDs present a similar question - since they are structured differently and you can borrow vast amounts if trading fx, how does the bank know how to calculate your ongoing interest costs?

 

Depends on the lender but will be $250k with all.

CFDs are different because you don't have a loan facility - i think.

 

The $250k was my thought - if I were the bank I'd do the same to fully cover myself.

Agreed there is no credit contract the same way with CFDs but the cash flow principles are the same, it just gets deducted daily from your equity. Perhaps a question for our mortgage broker.

 

It differs between lenders - CBA will ignore it but you can't use the income either.

 

This is true for me.
CBA ignores my margin loan however I believe it's because the ML is also with them.

Prior, when dealing with other big-4 banks (loan app or refi) they always included the entire limit when assessing my servicibility.

*I've had no experience with 2nd tier or non-bank lenders.

 

Are you sure CBA ignore it? And how do you know.
They may reduce the calc if it's not been used for 3+ years however I have never heard of a bank ignoring a loan. If anything ML are often treated with additional caution in case there is ever a call against them.
Is the ML and the facility you are applying for in the same names?

Also if this is the case I assume you have gone direct to the bank and not via a broker.

Blacky

 

Cba actually do ignore it but you can't include the income from the shares.

 

Wow... staggering. But very handy to know.

 

I know because on my loan application it is not listed as a liability.
Yes, both the ML and facility is in the same name - mine only.

My margin loan is active. Interest is capitalised so the balance increases every month.

I go through a broker but previously have walked into the branch to speak with the lending manager there and he also excluded it from an investment loan application.

Only CBA have ever ignored my ML. All other banks have always included it as part of the application.

Also, the ML was not written by my broker. It was done through my financial planner in the event you think the exclusion may be due to the broker's relationship with the CBA.

I've also applied for 3 different loans + 1 refi with CBA and not once have they included my ML.
The only thing I cannot verify is whether CBA only ignore ML's written by CBA.

 

Most lenders will include this and many will sensitise the debts, similar to OFI mortgage debt. This can make ML quite tricky from a servicing perspective, as often lenders won't include the income generated very easily either (e.g. tax returns to demonstrate dividend income).

CBA are the pick of the bunch here, they simply ignore it. Text below fyi:

Excluded from serviceability calculations (except for applications outside DUA)

When processing applications which include existing margin loans-no monthly commitment and no interest rate is to be included for the existing margin loans. (Note: Margin loan details such as the loan balance and limit still need to be recorded in application, but apply $0 monthly repayment & 0% interest rate.)

However - for applications outside DUA only -the margin loan must be included as a liability in the CBA and servicing calculators. The margin loan limit is to have the actual interest rate applied to obtain an interest only repayment. If the margin loan has fixed and variable loans use the higher interest rate noted on the statement for your calculation.