Can anyone answer my question regarding the initial cash or shares required as security for the establishment of a margin loan: Once the loan is established and becomes like a flexible line of credit, can I remove the initial cash or sell the initial share security and still have the margin loan sitting there?


There are three forms of collateral that can be used; cash, shares or managed funds. Firstly the margin loan application must go through the normal approval process where proof of income and a current statement of position are required to assess the application.

If the margin loan is approved, you can transfer accepted securities to the loan and unlock the equity to begin utilising your margin loan.


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If shares or managed funds are lodged:

If you lodge a portfolio of 5 shares, or a managed fund, totalling $3,000.00, and the average lending value of these securities is 70%, the amount of cash that can be utilised is $2,100.00. This cash can be transferred to your nominated bank account, it can be requested online or over the phone.

You need to consider that interest will either be debited from your nominated bank account or can be added to the loan balance, you can choose either of these options. The interest will be charged on the last day of the month.

If Cash is Lodged:

If $3,000.00 in cash is lodged, a purchase of up to $10,000.00 worth of shares or managed funds, with a lending value of 70% can be purchased. The same principal applies here, where interest on the loan balance of $7,000.00 can either be debited from a nominated bank account or it can be added to the loan balance.

The above scenarios need to be considered carefully as interest and the volatility of the shares will impact the lending value in both scenarios, this is further emphasised in the case where interest is added to the loan balance.

Removal of security:

A margin loan is very flexible as you have the ability to sell the initial security when you choose. The sale of the security will reduce the loan balance by the amount of the sale. If you would prefer to withdraw funds or remove shares or managed funds from the margin loan, your portfolio must have sufficient collateral to secure your loan at appropriate gearing levels. In other words, your portfolio value would need to increase to enable you to withdraw funds from your margin loan.

In both scenarios a margin loan can be utilised similar to a line of credit, where shares or managed funds can be sold or cash can be transferred to the loan to reduce the loan balance to zero. When the opportunity arises in the market and you want to take advantage of your margin loan, shares, managed funds or cash can be lodged on the margin loan to allow purchase of shares or managed funds.

In the event a loan is set up and is not utilised, there are no ongoing fees to keep the margin loan open.

By Stephen Karpin, General Manager, CommSec

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Important Information
The views expressed in this article are those of Stephen Karpin, a representative of Commonwealth Securities Limited (CommSec) ABN 60 067 254 399 AFSL 238814.  CommSec is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 23495 (the Bank) and a Participant of the ASX Group. As this information has been prepared without considering your objectives, financial and taxation situation or needs, you should, before acting on this information, consider its appropriateness to your circumstances and if necessary, seek appropriate professional financial and taxation advice.  CommSec Margin Loan is a facility provided by the Bank and is administered by CommSec. Please be aware that a CommSec Margin Loan exposes you to unfavourable movements in the value of shares and units in managed funds, and possibly to margin calls. Please be aware that you are personally liable for any shortfall that occurs should your entire portfolio have to be sold to answer a margin call where there have been falls in the market value of your investments. Only investors who fully understand the risks associated with gearing into investments should apply. All applications are subject to the Bank’s credit approval process. Fees and charges apply.  Please consider the Product Disclosure Statement, and terms and conditions, issued by the Bank and available from before making any decisions.