Loan Split with Suncorp

Hi there,

Reaching out to the mortgage brokers (@Jess Peletier, @Jamie Moore @Property Twins etc) on this great forum to see if the following can be answered:

Current situation:
- PPOR - mortgage with Suncorp, P&I
- The mortgage is split into a 3.74% fixed (690k owning) and a 4.06% variable (290k owning) rate
- I have an offset (which I assume offsets the variable portion) with a balance of 150k. The balance increases each month by roughly 8k after loan repayments and living expenses are made.

Following advice (whether the advice is good or bad is out of scope of this thread) from a financial planner, the strategy suggested is to use 70k sitting in the offset to invest in shares (by first paying into the home loan and then redraw as the interest are tax deductible).

The second part of the strategy would be to buy another 30k worth of shares every 6 months, using same mechanism as above.

Question 1): I queried whether splitting the loan would be useful for this purpose and answer I got was that I don’t have to split the loan directly and that I just have to know what portion of the loan acts as deductible (and therefore what portion of my interest repayments) when completing my tax return.
Any thoughts on this? Particularly taking into account Question 3).

Question 2): If approach in Question 1) is not recommended; with Suncorp, is there a way to split the loan? I.e repay 70k into loan from offset and split loan with additional 70k to then redraw for share investing? Can this be done using Suncorp?

Question 3): Can new splits be done every 6 months (again with Suncorp)?

Question 4): Should a Line of Credit with Suncorp be considered instead? If so, what would be the benefit over the loan split options?

Question 5) Is this something a mortgage broker can typically help with? My fixed rate doesn't expire for another year and a half so I don't intend to remortgage elsewhere until that point.

Finally, for additional info, the third part of the investment strategy would be to look at buying an investment property within the next couple of years to diversify.

Thanks!

 

I bet the planner isn't licenced for tax advice as this would create a nightmare and lose you money.

1. Incorrect from a tax deductibility point of view.
2. Yes, split the loan first into one split of $70k. then pay this off, almost, and reborrow it to invest
3. Yes
4. Probably not.
5. Brokers can help with the loan advice, but not the tax side.

 

Thanks Terry for the reply, appreciate it!

Just realised that I, inadvertently, omitted some information in Question 1 above:
I should have stated that the strategy suggested to repay 70k from offset into loan and redraw that 70k to invest. I am assuming this is ok from a tax deductability perspective (i.e claim the interest of the 70k) but not practical from an accounting perspective. Correct?

As always, thanks for all the really useful info on this forum!

 

Set up the splits first, then do the debt recycling component as you've described. Run this process past your accountant to ensure you're doing the right things the right way to ensure you get the appropriate tax deductions.

The easiest way to set up the splits is to approach the person who set up the loans in the first place.

I usually don't see any real benefit in a line of credit product for this type of scenario. It would likely require a full application to do this and doesn't rarely achieves anything a regular home loan with a dedicated offset account can. It's also very expensive.

 

Thanks Peter, this seems sensible.
1) Is there a limit to the amount of splits one can have?
2) I am assuming the splits can be set to IO? Or they have to be the same as the main loan (i.e P&I in my case)?
3) I am not a huge fan of the broker we used but I suppose I can go through him for another year and half before I refinance.

 

I don't know how many splits Suncorp will allow, even their own website doesn't mention it, it just states that splits are available. The offset account allows up to 9 sub-accounts (which isn't the same thing at all, but may be an indicator).

Switching even part a loan from P&I to I/O is considered 'credit critical' and would require a new application. To avoid a new application, the splits must be consistent on repayment time and loan term with the original structure. You can't have I/O splits unless you're willing to reapply.

Also noteworthy is that Suncorp don't allow interest only loans on a PPOR. Given your overall plan and advice from a financial planner, they might make an exception.

Your existing broker is earning trail on this loan, you might as well make them earn it. You could also simply call Suncorp directly, which might be easier anyway.

 

If you redraw $70k from the one loan it would be a mixed purpose loan. You would then have to apportion the interest - which is no big deal. But if you make any subsequent deposits into that loan it will be reducing your deductible debt as well as the non-deductible. So you can only do it once before running into trouble.

 

Ok, this makes sense. I wasn't aware of these restrictions. Sounds like for now and until I can refinance (when my fixed rate expires in 18 months), the splits will be P&I. We have the cashflow to do this.
Are there any issues with this I should be considering?

 

I have 18 months left on the 36 months fixed rate so I thought the break costs would be quite significant. Is this not the case or am I missing something?

Apologies for my ignorance, I don't understand the last question. Part of my loan is already on a variable rate. Are you saying I could ask Mr Sun "what's the cost to move the fixed rate loan to variable?"

How would that be beneficial? Because if I do this, I can then go and refinance elsewhere as opposed to wait 18 months?

Cheers!

 

You can ask for the break costs and if they're $0 then there's the fixed rate isn't stopping you. Given the fixed rate of 3.74% this is likely to be the outcome.

That said, there's nothing wrong with a 3.74% fixed rate, in fact it's fairly good. I'd only move if Suncorp is going to stop you from doing what you want to, and I can't see how that might be the case.

About the only thing I think they might not do is allow the 'equity loan' to be interest only. Paying P&I on $70k is probably a better outcome than paying higher interest on $690k over the next 18 months.

Work with what you've got for now, review it when the fixed rate expires (reviewing loans when fixed rates expire is always a good thing to do anyway).

 

Doubt you will have to pay significant break cost if fixed at 3.74% (it should be fairly low). Ring the bank and check it once. They should be able to give answer immediately.

And don't see much point in moving away from suncorp unless it's doesn't meet your split requirements.

Cheers,

 

Hi all, to follow up in case this is of interest. I contacted the broker who set up the loan asking if it was possible to set up a new split (as per above feedback) and according to him, Suncorp have said that basically we have to do an internal refinance of the variable loan to split it out into two, which is effectively a new application with them. The fixed account will stay as it is, but they will re-assess the new structure as if it was a new loan.

I thought this could have been done without a new application but looks like I was mistaken. Any thoughts?

 

I have split loans with them in the past without a reapp

 

I was told only a fortnight ago that it doesn't require a reapplication - it's basically just a restructure of exisiting loan funds.