- Jul 25, 2010
- 2,182
- 1,206
- AFL Club
- Geelong
Can someone explain this to me?
I don't get how if your security is an existing portfolio, you can only borrow a percentage of its value - for example, 70% - but, if your security is cash, you can seemingly borrow 3 times what you have.
So one guy has $100,000 worth in shares and is approved for a maximum loan of $70,000 - but another guy, who has 10 times less in cash can borrow $30,000!? nearly half what the first guy could?
I don't get how if your security is an existing portfolio, you can only borrow a percentage of its value - for example, 70% - but, if your security is cash, you can seemingly borrow 3 times what you have.
Example A: Borrowing Against an existing portfolio of acceptable investments
If the Lending Ratio for an investment is 70% and the market value of your holding of that investment is $100,000, then your borrowing capacity is up to $70,000 which is the Lending Value ($100,000 x 70%).
Example B: Borrowing to acquire a portfolio of Acceptable investments
You intend to acquire acceptable investments with a Lending Ratio of 75% and have $10,000 of your own money. This means you can potentially invest up to $40,000 (10,000 divided by 25% [which is 100% minus the 75% lending ratio) This means you can borrow up to $30,000
So one guy has $100,000 worth in shares and is approved for a maximum loan of $70,000 - but another guy, who has 10 times less in cash can borrow $30,000!? nearly half what the first guy could?