When you apply for an EasyCredit loan, you agree to pledge a portion of your portfolio as collateral, in order to borrow money. The shares that you pledge against your loan are shares from the top 100 companies and most liquid ETFs and are called qualifying investments.
We allow you to take a loan at 33% of the loan-to-value (LTV) of your portfolio. This represents the ratio of how much you are borrowing, vs how many qualifying investments you have.
If you sell any of the qualifying investments on which the loan is based, or if the market drops and your qualifying investments’ value goes down, this will impact/ change this ratio, and a portion of the proceeds are used to partially settle your loan.
We allow for some leeway with that. We allow you to go up until 48% loan to value of your portfolio, but after that point, we will take action to recoup the difference between your original loan amount (33%) and the loan amount you now qualify for.
You loan R33 from R100 worth of qualifying investments.
You then sell R20 of your qualified investments.
R6.60 (R20.00 x 33% - Current LTV%) will be recouped from the proceeds and used to reduce the loan amount. The outstanding loan will reduce from R33 to R26.40 and the LTV% will remain at 33% (24.60/R80).
If the market moves and as a result the value of your portfolio decreases putting your LTV% above 48% (R26.40 vs less than R55 of qualifying assets) the loan will be reduced at 33% LTV.
At this stage we will then either recoup funds from your free cash or, if not available, sell holdings from your qualified shares to bring the ratio back into an acceptable range.
You’ll be able to view where you stand in terms of this ratio (at risk or in breach) within your EasyCredit platform.
NB: It’s important to keep the above in mind if you have pledged investments in your TFSA account as part of applying for your loan. This means that the investments in your TFSA can be sold to recoup funds in order to bring your LTV ratio back to 33%.