Loan restructure with AMP. Shares, Offset Accounts etc

G'day all,

Firstly I'd like to thank everyone on this great forum, the resources and comments are invaluable!

I am in the process of refinancing and thought I'd post a few questions here for feedback or comments.

About me

• Both wife and me are in our mid-30s
• Combined income is roughly 350k p.a, before tax
• Me being in the highest income tax bracket, wife in second highest
• Purchased first PPoR in 2017 for $1.28M
• Purchased 85k worth of shares (ETFs) in 2019. Following advice from Financial Planner

Current loan structure

• When first set up in 2017, we had two splits (with Suncorp)
  • 3-year fixed, 714k
  • Variable, 306k
• Our current structure is a bit different as it evolved over time, we bought shares in 2019, our fixed has reverted to a variable rate etc. Still with Suncorp, loan balances below
  • Split 1, variable rate P&I @2.81, 659k
  • Split 2, variable rate P&I @2.81, 186k
  • Split 3 for share investment, variable rate P&I @2.81, 80k
    Used funds in offset account, repaid into split 1, then created this third split and then bought shares
• Offset accounts
  • Offset 1 is joint account which offsets Split 2 above. Balance in this offset is 35k
  • Offset 2 is a joint account with "my savings" which offsets Split 2 above. Balance in this offset is 140k
    
  • Offset 3 is a joint account with "my wife's savings" which offsets Split 2 above. Balance in this offset is 90k
    
  • Offset 4 is a joint account with "my savings" which offsets Split 3 above. Balance in this offset is 82k
    We couldn't have an offset for Split 1 apparently when it reverted from fixed to variable rate but we were able to have an offset against Split 3 so we went ahead with that.

The structure above is not ideal as we've maxed out our offset for Split 2. We have surplus funds which are not offsetting Split 1.

New structure / requirements

• Not yet finalised but thinking of going with AMP and their master limit facility, variable, P&I @2.59
• We'll continue to buy shares, say 30k every 6 months or 60k every year
• We like the option of having multiple offset accounts. At the moment, it's easy to see who has what savings (yes, it's all one bucket at the end of the day but we like the option to have "separate" offset accounts to add our own individual savings into each month
• We're thinking setting up 5 accounts/splits:
  1. 10k LOC, IO. I understand this is mandatory?
  2. 400k P&I variable @2.59 (with an offset for "my savings")
  3. 400k P&I variable @2.59 (with an offset for "my wife's savings")
  4. 45k P&I variable @2.59 (with an offset & transaction account for our joint savings)
  5. 82k P&I variable @2.59. This is the one used for the existing shares investment. We don't need an offset for this one.

Questions

1) My broker told me that you can't have multiple offset accounts with AMP unless you split the loan i.e you can have 10 splits and one offset account per split but you can't have one loan account and 10 offsets. Is this correct?

2) I understand some people would set up the 5th split above (82k) as IO to redirect the cashflow towards the non-deductible debt instead. My financial planner has advised that with the surplus cashflow we have every month plus the historically low P&I rate, we can leave this split as P&I.
Any counter arguments?

3) Does AMP have a transaction account with a debit card with this account also acting as an offset?

4) In 6 month we will be buying 30k worth of shares. Any idea how to structure for this? Can we just, at that point in time, reduce the 2nd split from 400k to 370k and create a 6th split of 30k?
If yes, is this easy to do?

5) What do we do with this 10k LOC IO?

6) Any other comments/feedback?

Thanks heaps (this post turned out to be a lot longer than anticipated!).

 

best to get some tax advice too

 

I have a AMP loan with master limit so can answer most of your questions.

1. Your broker is wrong - it is up to 10 offset accounts per loan split. I have eight offsetting one split currently.

2. You save 0.7% by having it P&I but then are putting the extra repayments into deductible debt. You'd need to model it up to see which way you are better off over time. Do see my comment about IO loans below with the master limit.

3. I'm sure you can get a Visa Debit card for the offset accounts. I don’t have any as I do my day to day banking with another bank and use the AMP offsets for bucket savings accounts.

4. With the master limit facility you can fill out a form and send it off and the change is made in a couple of days. Yes - you can decrease the limit on split 2 and either create split 6 (with 30k loan limit) or increase the loan limit on split 5 (by an extra 30k) and then draw it down.

5. We've done nothing with the 10k LOC. The interest rate on it is higher than on the other loans so it is just a little bit of wasted equity for us. Unfortunately it is mandatory to have it (or so I was told when I took out the loan).

6. Additional comments -

If you are changing a split to IO or creating a new IO split using the restructure form then you need to submit financial details again - other changes this is not required. So if you have some funds that are going to go into an offset it might be beneficial to do a IO split up front and then you could increase it later as required without having to provide full financial details.

I check periodically on their latest advertised rate and if it is lower than my current rate I've put in a pricing request to my broker to check if AMP will match it for me. Every time they have so far - which I'm pretty happy about. I think positively of both my broker and AMP for this.

Regards,

Jason

 

Thanks Jason for taking the time to a) read through my War and Peace post and b) provide great responses.

Based on what you've said, I probably don't need to do as many splits as below:

• We're thinking setting up 5 accounts/splits:
  1. 10k LOC, IO. I understand this is mandatory?
  2. 400k P&I variable @2.59 (with an offset for "my savings")
  3. 400k P&I variable @2.59 (with an offset for "my wife's savings")
  4. 45k P&I variable @2.59 (with an offset & transaction account for our joint savings)
  5. 82k P&I variable @2.59. This is the one used for the existing shares investment. We don't need an offset for this one.

I could combine splits 2, 3 and 4 into one.
Out of curiosity, if I keep the structure as above with the 5 splits, can I combine splits 2 and 3 down the track if I wanted to? Or would this require a new application, submit financial details again etc?

Cheers

 

Yes - you can combine the splits without a new application.

Have a look at the restructure form at "https://www.amp.com.au/content/dam/...044_Master_Limit_Restructure_Request_Form.pdf" - it will give you an idea of what can be done.

Regards,

Jason

 

You can setup a visa debit card against any of the loan accounts or offset accounts. I have a couple of them for different purposes. You can even change which loan or offset the debit card is 'attached' to with a phone ca to AMP. It's all incredibly flexible.

Btw restructure (form) requests have taken up to 2weeks for me. Never had one completed in a couple of days.

 

Thanks for the replies gents. Silly question, with the 10k LOC, will I need to make any repayments or do I need to put 10k of cash to avoid paying interest on it? I don't intend on even using it at all.

I am trying to understand what you mean by "it is just a little bit of wasted equity". Can you kindly expand on that?

 

With loc there are no payments unless it is drawn down

 

As Terry said - no payments required on the LOC unless you draw it down.

It’s wasted equity because I don’t have the need of a LOC and would rather have that $10k as either IO or P&I at the lower rate.

Regards,

Jason

 

wasted equity as this LOC is in a higher rate, which means for me I dont want to use it for re-investing. I would rather use the other balance on say split 2 with lower interest rate.

What you could do with it though is for " rainy days " its good to have it there just in case emergency arises.

 

Thank you all! This forum is great

 

Or attach a visa debit card to the 10K LOC and you have yourself a very low rate backup credit card facility.

 

Hi all,

Our broker set this up as per the above late last year (with a small issue for point 5), as described here Tax Tip 304: Split Loan as Needed Rather than a Big Split when Debt Recycling)

Anyway, we have a good amount of savings in our offsets and following advice from our Financial Planner, we will be investing 150k in shares in 3 x chunks of 50k over the next 6 months.
I feel like our broker isn't very savvy about how to structure this properly but given the broker set up the loan and we're not refinancing, is there any other option (such as use a different broker)?