Westpac Online Investment Loan FAQs
An investment loan is simply borrowing money to invest in acceptable shares or managed funds. You use your existing cash, shares or managed funds as security and we lend you money to invest. This form of borrowing is also known as 'gearing'.
Borrowing money to invest can potentially help you increase your returns. It can also be a tax-effective way to achieve your financial goals, and makes it easier to diversify your portfolio.
Your investment portfolio of cash, acceptable shares or managed funds is the security (or collateral) for your investment loan - just like a mortgage on property for a home loan.
Borrowing money to invest in shares and managed funds can increase your potential gains if managed correctly. However, it can also increase your losses if the value of your investments falls.
Like any investment, an investment loan involves some risks. While borrowing to invest more money in shares and managed funds increases your potential returns, it can also increase potential losses.
However, careful management of your investment loan can help to reduce the risks.
Common risks are:
- Market falls
- Interest rate rises
- LVR reductions or removal
- Dividends from investments not received
- Taxation law changes
The key risk with investment lending is where your loan balance exceeds the limits set and you will receive a margin call where you have to take action to restore your account position.
You'll be assessed for your requested credit limit based on your financial position. The credit limit is the maximum your loan can reach, regardless of your borrowing limit (see below).
This limit is calculated by multiplying each investment's market value by its loan to value ratio (LVR). As the value of your investments changes every day, so does your borrowing limit.
An LVR is assigned to each investment in your loan portfolio. The LVR is the percentage of the investment's market value that the investment lender will lend you. For example, Westpac investment lending will generally lend between 30% and 80% of the value of acceptable shares and managed funds.
The amount available for further investment at any one time is called your funds available. It's calculated by taking the lesser of your borrowing limit and your credit limit and then subtracting your loan balance.
A margin call is triggered when your loan balance exceeds your borrowing limit by more than the buffer we allow. If you get a margin call, you need to bring your loan balance back under your borrowing limit within a short period. The buffer offered by Westpac investment lending is generally 10% of your portfolio market value. This means that small changes in the market or your loan balance won't trigger a margin call.
There are two ways to clear a margin call:
- Add more acceptable security, which can include cash
- Repay part of your loan