Loan Tip: ANZ Investment Loan Strategy

This is a strategy for those with PI loans with offset accounts attached.

Because the offset will save you interest on the loan, without the repayments being reduced, this will mean the borrower will become ahead in their loan. When a borrower is ahead in their PI loan some lenders will allow the minimum monthly repayment to be reduced.

ANZ allows this and the borrower can do it on their internet banking.

To do so just go into the details tab on the loan account and scroll down. You will then see “Loan Repayments” heading on the right.

There it will list ‘Minimum payment amount’

And

‘Your current bank managed payment (DLP)’

If the amounts are different, you can change it by clicking

‘change my current loan payment amount’.

Click on this and change the month amount. It won’t let you reduce the amount to under the minimum required to pay off your loan in the remaining period left on the loan.


Here are some screenshots from a client’s loan, posted with approval:


Why would you want to do this?

- To improve cash flow
- To divert cash from paying off deductible debt to that of non-deductible debt (thereby saving tax)
- To delay the repayment of a fully offset loan
- To invest that saved cashflow elsewhere
- To improve the effect of debt recycling (where the loan is non-deductible debt)
- To improve retirement
- To build up cash reserves without incurring extra interest.
- To improve serviceability


In the above screenshots the borrower is reducing their repayments from $1,906.14 to $1,797.82 per month. That is $108.32 per month or nearly $1,300 per year.


This means
- $108 per month improved cashflow
- $108 extra per month which could be used to pay off non-deductible debt
- Having approx. extra $32 pa extra tax deductions
- Slowing down the repayment of the loan
- Having $108 extra to invest each month
- Having $108 extra to spend each month on retirement


Having $108 extra per month to debt recycle, which will have the bigger impact because you will have about $1300 per year in extra capital compounding, you have an extra $32 deduction each year, you will have further income on what you invest in which will grow over time, and it will improve serviceability because of all this.


These figures are not huge but consider if you had several of these loans and needed them to be PI because of serviceability. Consider the year on year compounding, the saving interest on interest, having more capital growing with increasing income coming in year after year.

 

why not do other banks give this option? This is a great idea ANZ introduced.

 

Some do
I think CBA to an extent, but not Westpac or AMP. They will base the monthly payments at the original loan term and adjust for rate increases.

 

Great tip Terry.

Curious how does this actually improve serviceability/borrowing power unless it's for a lender like Pepper that takes actual repayments?

Wouldn't a bank lender usually still take the loan amount remaining, loan term, and assessment rate to determine the repayment amount, so it wouldn't matter if you lowered your repayments using this method or not?

 

Its because the minimum repayments are lower - might work with some but perhaps not all.

 

Liberty offers something similar.. if you make extra payments and are ahead, you can reduce your next couple of payments right down to $0 if you really wish, all online, and effectively immediately.

This is not based on your offset, and I don't think is permanent, so is probably a little different to ANZ.

Does allow you some control over your cashflow for short periods of time. In my situation I had an IP that went un-tenanted for a few months to touch up/prepare for sale. Allowed me to reduce payments one on property, and to direct it instead to the mortgage of the IP.

 

Hey Terry, how are you?

This is a great post, thanks so much.

We are looking to buy our first PPOR very soon. We have been speaking to a broker and it looks like we will go with ANZ as the lender. This is due to me being a sole trader and having less than 2 years of financials.

I know ANZ isn't the ideal bank for debt recycling but I have read it's possible. Do you suggest to split the loan into parts to start with...say for $600k

$300k - Offset
$50k
$50k
$50k
$50k
$50k
$50k

Is this possible with ANZ?

Cheers.

 

I modelled this post on a client that I put to ANZ

Tax Tip 13: Simple Loan Structuring Strategy Tax Tip 13: Simple Loan Structuring Strategy

There used to be a max of 6 splits, not sure what it is now.

 

Yes they do

That's what the PAs are for

 

Cheers for that Terry.

Is it better to split the loan up initially like that or build up equity and do it down the track?

 

Yeah sure can. Can even be done on the app. Few clicks and it's done.

Can also switch SVR > Fixed on the app, no paperwork.
Can even split which is a cool new function... but so far only allows 1 split and there must be a fixed portion.
Reckon would be simple enough to expand multiple splits and splitting existing variable, which would be great for those looking at debt recycling.

 

CBA can do it, I got 8 splits set up against a PPOR that has been "recycled" to deductible debt.

 

Unless you can do the splits on an app it would be easier to set it up at the beginning I think

 

Hi Brady,
Would CBA allow splits to be joined together?

 

Not yet - they were working on it (believe there was pilot). Was designed around putting building loans back together after completion (CBA splits land and build due to the IO on the build).
Along with being designed for like 4 like refinances with less compliance.
It's close but guessing there was a snag (maybe regulator, maybe funding for the project)

The tech is there, so wouldn't be far off.

Be great to have all on the app being able to multi split and combine!

 

Ok great, thanks for that. I have asked the broker and they said do it later once equity has built up. What do I say and ask exactly to get the spilt loans?

 

It’s got nothing to do with equity building up

 

We will have approx 80% LVR. So just ask for the loan to be split from start?

 

If your loan is fully offset would this recalculation bring down your monthly repayments to just the principal amount due ? Thanks