Margin Loans Margin loans and home loans

A quick question that may seem stupid to many.
I got called in to have a meeting with my lender. One of the topics that came up was leverage to purchase shares and the best way to use it/best product.
The banker stated that margin loans do not come up as a liability on your servicibility if I was to refinance or apply for a home loan in the future etc.
Does this sound right/is this correct?
I couldn't get around the fact that a say a 300k margin loan wouldn't be a factor on a lender assessing your ability to repay a future loan.
One would think a loans a loan and would be taken into account for a new mortgage application.
Could someone chime in here and confirm? @Rolf Latham @Terry_w @euro73
Many thanks

 

All lenders take them into account except CBA, who I'm guessing is the lender you spoke to.

 

You must have been stalking me!!
Exactly who I spoke to!
Is there a reason for this Jess? I take it if you take out a margin loan with cba and then decide to see a broker Younwould be shooting yourself in the foot and pretty much trapping you with cba for your next loan?

 

Other banks will take dividend income into account, but generally after 2 years. But if you have substantial margin loans CBA would be the go.

 

CBA won't take any income from shares secured by a margin loan, but they ignore the facility for servicing purposes. Every other lender treats them like a normal term loan - some over 25 years, just to make it more difficult. They go off the limit, too, not the balance AND treat it P&I, so if you have a massive ML it really will kill your borrowing capacity. Lenders will usually take share income but it's not anywhere near enough to offset the interest on the loan.

 

Thanks very much for clarifying that! You've explained it so even I can understand! Again looks like debt recycling is the winner when it comes to leverage into shares

 

@Terry_w @Jess Peletier Very useful post. Is CBA the only bank that takes this approach with (CBA) margin loans?

 

the only one I know of.

 

Thanks Terry. That suggests if you have a significant CBA margin loan, you pretty much confined to HL borrowing from CBA. Of course, if you have big ML facility and small outstanding balance, you can sell shares (assume no CGT) and cancel facility to improve servicability, but CBA margin facilities are not easy to establish and now require full servicability check, so simply cancelling facility ahead of HL application not particularly attractive.

 

It is not just for CBA margin loans, but any margin loans.

 

Folks just to clarify. I have a $1mil limit on my margin loan, but margin loan balance is about $650k. My annual statements consistently show my dividends exceeding my ML interest. Party because I have been able to secure low ML interests (~4.8%) & average gross share yield is more than 5.2%. I plan to continue using the ML facility as these loans will never become P&I, unlike home equity loans. As far as I am concerned this margin loan does not affect my cash flow. Why will the non CBA banks see this as a detriment?

 

Wow, where can I get a ML interest rate of 4.8%?

 

Nab?

 

Understand. But if this ML was a HL and secured against a property, banks will have to assess this loan at a higher rate in the post APRA era, due to the fact a HL will become a P&I loan in time. However as this ML will never become a P&I loan, and its cash flow positive against its security, will it affect my future HL borrowing by much? I understand there are other dependencies like income......etc

 

It can hurt borrowing cap heaps

 

When people

Whenever I deal with a large bureaucracy governed by rules, I don’t always expect it to be logical.

 

So, as Paul Keating once said, you can be the prince of print or queen of the screen, but not both. Gear up with a ML in shares, or gear up into property. But doing both ain’t so easy.