2.5% Home Loans

Discussion in 'Loans & Mortgage Brokers' started by Taku Ekanayake, 29th Oct, 2015.

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  1. Taku Ekanayake

    Taku Ekanayake Well-Known Member

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    I went to the Property Buyer Expo on the weekend and there was booth (or two) pitching this product. Just received an email from them (see attached) which describes the structure.
    Looks like it's gaining popularity/exposure in the mainstream now.
    Are a lot more people using this product now?
     

    Attached Files:

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  2. BennEznElle

    BennEznElle Well-Known Member

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    Would this product be available to someone who has a PPOR and IP (or a number of IP's) with both properties secured by loans, however all the debt is investment debt?
     
  3. Perthguy

    Perthguy Well-Known Member

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    Thanks for posting that. It makes perfect sense now. From the first post it looked like the interest was being moved from the OO loan to the IP loan. For example, they both start at 4.5%, the OO loan is reduced to 3.5% and the IP loan is increased to 5.5%. ATO would not like this.

    However, in the example, both loans start at 5.5%, the OO loan is reduced to 2.55% and the IP loan is reduced to 5.35%. It makes a lot of sense. If I ever get OO debt in the future, I would look at this for sure.
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Thanks Taku. They spelt Part IVA wrong!

    it seems there are a few different products with different lenders all licencing the same concept.
     
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  5. tobe

    tobe Well-Known Member

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    What benefit would you get if it were?
     
  6. BennEznElle

    BennEznElle Well-Known Member

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    True, I guess the total interest is the same its just lower on the non deductible side. Only thing I can think of would be 2 properties husband owns 1, wife owns the other, husband on higher income, would be better to have the higher interest rate on that side to make the most of the tax deductions.
     
  7. Perthguy

    Perthguy Well-Known Member

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    Sounds like a scheme with a predominant purpose of higher tax deductions for the higher income earner.
     
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  8. MRO

    MRO Well-Known Member

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    The whole arrangement sounds like a scheme, very surprised the ATO is happy with it (i havent read the ruling to confirm this)
     
  9. Perthguy

    Perthguy Well-Known Member

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    That's what I thought too but in the example given, both loans start at 5.5%, the OO loan is reduced to 2.55% and the IP loan is reduced to 5.35%. Under the arrangement, there are less tax deductions for the IP. I would say that is why ATO finds this arrangement acceptable. They specify in the ruling that under the arrangement the IP interest should not be more than if they were not in the scheme. For example, if the IP rate started out at 5.5% and went higher than that, ATO would not allow.
     
  10. Johann_

    Johann_ Well-Known Member

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    I would bet once ATO gets a sniff of this product they will look into it.
    But you would also need see what "fees" are applicable etc.
     
  11. Perthguy

    Perthguy Well-Known Member

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  12. M-THIS

    M-THIS Well-Known Member

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    anyone using these loan reducer home loans on here currently?
     
  13. tobe

    tobe Well-Known Member

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    It's easy enough getting a higher rate for investment debt outside of these products.
     
  14. Corey Batt

    Corey Batt Well-Known Member

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    Makes up a tiny tiny tiny percentage of the market. Overall the balanced interest rate isn't great, so you're reliant on a tax saving to outweigh the higher interest costs.

    I'd sooner focus on utilising structures which will help your grow your portfolio and contain costs where possible. Otherwise if solely focused on interest saving go for a cheap and nasty option which is less rigid and not reliant on pumping up the interest rate on the investment debt dramatically.
     
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  15. M-THIS

    M-THIS Well-Known Member

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    How?

    Interesting! Can you share what rate you'd expect to see from these guys? Say 1m home loan + 1m investment loan, both @ 80% LVR.
     
  16. Corey Batt

    Corey Batt Well-Known Member

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    In that scenario we'd be looking at:

    Owner Occ portion: 3.27%
    Investment portion: 5.69%

    I'd note there's a whole bunch of T&C's, the owner occ portion requires accelerated P&I repayment on that portion etc. The only way you're getting near the bottom end of those rates is if there's a significantly larger investment debt amount than owner occ.
     
    Last edited: 3rd Apr, 2017
  17. JasonC

    JasonC Well-Known Member

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    Wouldn't that be the other way around? I thought the point was higher rate on investment loan (more tax deductible debt etc).

    Regards,

    Jason
     
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  18. Corey Batt

    Corey Batt Well-Known Member

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    Good spot there - corrected.