2.5% Home Loans

Hi guys,

I went to a property investment seminar tonight, put on by Meridian Property. They spoke about the usual stuff i.e. property clock, all the usual supply/demand stuff, next stop Brissie, etc etc etc…

However, they had a guest speaker by the name of Yza Canja, and she started talking about a new home loan product which only a 'very few' financial strategists (mortgage broker - but she made it clear she didn't want to be referred to as a mortgage broker) that have access to this product.
The only requirement is that you need to have an investment loan linked to your home loan, and your home loan can reduce to as much as 2.5% and your investment loan increases to 5.5% (max).
The more debt you hold, the lower your home loan interest rate becomes (up to 2.5%), but your investment loan increase (up to 5.5%).

By the sounds of it, that means the loans have to be crossed?
Also, she wouldn't reveal which lender was offering this, and had to book in private consultation.

Has any one on here heard about this 2.5% loan?


Cheers,

Taku

 

It would be interesting to see what the ATO would have to say about that.

Assuming you claim the interest on 5.5% as an investment expense. What would be the predominant purpose of this scheme?

 

A variation of Hart's case. Sounds like a scheme with the dominant purpose of creating extra tax deductions.

Ask them if they have a product ruling or a private ruling.

 

It's a product that works for some esp ppl with high income, we have just started writing this new product ( it's not actually new as per say...was introduced 6 years ago with a low uptake rate)

0.50% on top of the RBA cash rate for the OO. ( Ceiling rate 3%)
2.0% - 2.5% on top of the RBA cash rate for the IP ( Ceiling rate 5.5%)

100% offset available
Equity allowed
Average Servicing
It's a white label product.
The Main Funder is a Australian Non bank lender ( it's actually an Australian fund manger - Columbus Capital ...retail name is "origin funding"

And yes they do have a Private ruling.

 

Hi Mike C - have you used them? how did you find them?

Taku - I hope you didn't buy a property at the seminar....

Cheers, Ivan

 

"When it's too good to be true . . ." etc and so forth.

 

Its simply a variation on the current APRA inspired theme. Most of the majors have a different rate for OO and INV loans. Its just the margin is a little wider with this product. Note, its not debt recycling, its just taking an average rate of say 4.5% and doing 3% on the OO and 5.5% on the INV. Your still not going to pay off your OO debt without some sacrifice. Id suggest focusing on the main game, which is having the right structure and disciplined cashflow.

 

Mick do you have a PBR number for the ruling?

I thought about doing this with white label products where the broker can adjust the rate but the effect wouldn't be as great. It would be better done with 2 separate funders to gain greater protection.

 

Thanks for the feedback all.

@Redwood I didn't buy from them but do know a couple people that have. Why do you say not to buy a property from them?

 

It is legitimate - a product we have on our panel. Part of the technical aspects is that you're not meant to quote it as 2.5%, but a maximum discount up to 3% off the SVR - such as this: https://twitter.com/PrecisFunding/status/648441378142195712 They're very pedantic about not having people mislead with this product.

The product and ruling is quite strong, with parameters in there to work in the client's interests. The properties are specifically NOT allowed to cross collateralised, the PPOR debt MUST be P&I and there is an accelerated repayment to erode the PPOR loan rapidly.

Includes the usual offset accounts etc. The interesting part is that it's a portfolio facility, so you can encourage a rapid reduction in the PPOR debt, whilst opening up an increasingly growing investment split without full application continually.

 

Well said sir!

 

Certainly makes it easier to have disciplined cash flow with a forced accelerated repayment structure at a discounted rate of course.

 

I've also heard it has a ruling. Good to see some innovation. You'd think the blended rate would be highish but once you add in the extra deductibility might be a goer.

Doesn't suit anyone with high PPR debt so that's me out

 

Ex FirstMac Treasury guys ... Not surprised there's an Origin involvement - FirstMac - previously Tonto and previously Qld State Home Loans were, and remain, by far the biggest Origin mortgage managers, before KC set up his own origination model. He still has a gigantic Origin book paying him millions per annum as I understand it.

 

Do you need to have PPOR and IP? Or does it extend to people with just PPOR?

 

Need to have both, otherwise they can't balance the rates.

 

What they're doing is charging a higher rate on the IP than you'd normally get, and a lower rate on the PPOR.

From the lenders perspective they're earning the same amount of money from the borrower. From the borrowers perspective, they're paying the same, but getting a larger tax deduction.

As a result you need both deductible and non deductible debt to make it work.

There could be situations where it might be made to work with two IPs and various ownership structures as well.

 

My opinion is that this won't work because it is a scheme very similar to the Hart case.

Until you get your own Private ruling beware.

 

ATO Product Ruling on the specific product > opinion.