Hi All, At the moment I have two loans ( OO P&I variable ) around 300K each with ANZ. I have around 100K in the offset linked to one of the loan. Now since there are attractive options I am now stuck with the below structure. It would be great if you can throw some pros and cons with the below strategies : Strategy 1: Fix one of the loan at 3.18 for 2 years or 3.28 for 3years Leave the second loan with variable at 3.42 with offset Strategy 2: Fix both the loans at 3.18 Invest the offset money in ETF/LIC's
What exactly are you trying to achieve? Fixing the loan gives you certainty. Strategy 2 increases both risk and returns. If the loan is PPOR, using the offset increases your nondeductible interest. Ask your accountant about the tax impact of redrawing. You are comparing apples to oranges, and missing the pear in the background.
Strategy 3: Leave the loans as variable. Invest the money as you see fit, leaving it in the offset otherwise. The question is, why do you want to fix and why specifically now? If you're fixing because the rates are lower than the variable, are you certain that they won't go lower?
I think no one can predict what is going to happen. However, I feel we are very close to bottom rates. Because, I just reach 80% LVR and was looking for better rates.
The wider market thinks the RBA will drop another 0.5% off the cash rate by February next year last I checked. The banks think their costs/rates will drop too, as evidenced by the current variable and fixed rates on offer. They might all be wrong, but it does seem ambitious to presume to know better.
Speak to a great broker before you invest in LICS - they'll be able to give you some strategies to increase your deductible debt before you fix, if that's what you decide to do. Bear in mind, often in the rush to 'make more money' we can 'lose more money' just as easily, so be aware of that and make sure your risk management is in place.
Thanks , yes was also thinking of debt recycling as an option . The LOC interest rates seems to be high.
strategy 3 : Pay the offset money to bank Take out new LOC loan Invest the money into LIC's or ETF Use the dividend money to pay the mortage and keeping the deductible loan higher
Why an LOC? Why not just a separate new loan split with it's own offset, invest it in LIC's or ETF and it's classed as an investment loan for tax deduction purposes, you'll get a much better rate on the loan split compared to LOC If looking to debt recycle this strategy works well with lenders who have a Master Limit product AMP/Macquarie for example.
Strategy 3 : Expanded with numbers Initial Situation Loan A + Offset = 275K+25K 3.42 P&I Loan B = 325K 3.42 P&I Step1 Pay 25K to Loan B from Offset account Split the 25K loan form Loan B After Step 1 Loan A + Offset = 275K+0K 3.42 P&I Loan B = 300K 3.42 P&I Loan C = 25K 3.42 P&I Step 2 Transfer the Money to Trading account 25k Buy ETF's/LIC /Shares 25k After Step 2 Assuming 4% return ( 1000) + Franking credits ( 300) So total profit = 1000 Interest Paid on the loan = 855 So overall Taxable income would be ( 1000-855) = 145 Franking credits returned = 300$ If no DR total taxable income would have been 1000 instead of 145. Franking credits returned = 300$ That means I would have saved 320$(37% tax bracket) more from DR strategy Step 3 Pay the monthly instalments to Loan C Any additional Savings or Dividends to be paid to the Loan A offset Once I have made additional 25K in Loan A offset , pay the additional funds to Loan A and make one more split ( Loan D ) Repeat from step 2 I have opted for P&I for the investment loan as it is easy to split to a P&I than to a IO only loan in ANZ Are there any loopholes in this strategy ?
Thanks Terry, I believe that's the best the big 4 can provide. And , no hassle of moving everything to new lender. Need to explore the AMP product a bit.
Self-Managed Super - Super your way PFI can assist you with your investment strategies for your SMSF, Life Cover for your members and assistance with compliance. We provide the research to ensure your investment selections achieve the goals. This is the value of advice » Contact us today