Hi. I've finished reading Peter Thornhills book and my husband and I set keen to undertake his debt recycling plan. We currently have our PPOR with Suncorp so we would be looking to refinance and apply for a loan with a Line of credit. Peter talks about ensuring it is a line of credit that allows you to take more out as the mortgage reduces. Im trying to work out what this loan product is called? Also, we have a couple of hundred thousand sitting in the savings account off setting this home loan. Has anyone got a good reason for not just paying down the PPOR meaning a loan of only around $250k? Or leave it sit as an offset? My big worry is that inflation is really making the value of the dollars in savings undervalued.
Firstly a Line of Credit is simply a regular loan with a couple of features. They tend to have a long interest only period and are transactional like a regular savings account. The interest repayments can be made from the redraw on the loan itself. They also charge a lot more interest than almost any other type of mainstream loan product. There really isn't anything you can do with a LOC that you can't do with a more mainstream loan product and an offset account. A line of credit won't improve your current structure, more likely it will cost you more. It can also be less tax flexible depending on your financial position. It's been about 8 years since I set up a loan with an LOC product for a client (at their very specific request). Even the bank queried why it was being set up that way.
As an aside almost all lenders have withdrawn their LOC products from sale. If you are looking for an ants pants DR product, AMPs Master Limit has 1 function that no other lenders does, that being a Master Limit for up to years. What that means is that you can full redraw the loan limits against what has been been paid down. The other function that the AMP product has is the ability to debt recycle from OO PI to INV IO, not other lender that I know of that has this feature. Mac allows limit rebalancing on same repayment type, and isnt a bad thing if one doesnt qualify for AMP Master Limit And yes, the AMP ML set up has a LOC as part of the set up, usually set to the min 10 k limit so as to enable both the Master Limit and and loan split rebalance facilities. ta rolf
So just to check I understand you fully, AMP will allow the borrower to refinance their current loan and use 100k to buy shares, with the interest on the 100k being fully tax deductable. When the dividends come in, it can go into the mortgage loan portion. As per Peter Thornhills proposal, the borrower then redraws that exact same amount from the loan to purchase further shares?
Almost any lender will allow that but AMP are one of the bests. But what do you mean by 'mortgage loan portion'??
Peter Thornhill suggests that you have your mortgage and then the loan for the investments (shares). This means that the investment part is the tax deductible part of the whole set up. This is what I mean by the mortgage part. I am sorry to sound so simple. I have tried to do a lot of my own research but I am really hesitant to speak to my mortgage broker about it because I've just been moved to a new person (my old one has retired) and I am really apprehensive about only taking on one persons advice.
I think you are confusing terms. A mortgage is security for a loan. You will have 2 loans at least if debt recycling. You would want dividends paid into the offset account linked to the non deductible loan and then from this offset account you would make minimum repayments on the investment split this will be the most tax effective basic set up
If I went to AMP and discussed this with them, are they likely to ******** me or be as straight forward as you have been? By ******** i mean try to sell me something I don't actually want.
I expect they will look after you if YOU know what you need and why Dont expect a product provider to structure your finances, thats not their remit ta rolf
For Clarity lets use a worked example using the AMP Master Limit Refi to 300 k non ded home loan 100 k Cash out for shares Total loan Master Limit 400 k Use the 100 k to buy equities, that loan is then deductible for that purpose Use all +ve cash flow to pay into the 300 k Non ded Home Loan Once the 300k loan is down to say 280, apply for a limit variation as below 280 k non deductible 120 k Shares loan , with 20 k available to invest in equities Rinse and repeat while the Master Limit available ( 5 to 10 years depending on serviceability). Note ML is only available to 80 % LVR or less There are some nuances which can make for very different outcomes depending on borrower risk profile, and personal financial circumstances such as marginal tax rates etc. Its there where a DR specialist Financial Planner can run some scenarios around Should the non deductible loan also be IO - ie is the rate spread worth paying for the benefit of faster investment Should one margin lend the 100k, and if so, to what level - most planners will cap this at 30 to 50 % to limit margin call risk Active DR isnt hard, but getting the structure optimised for one's personal circusmtances can make for a significantly better outcome ta rolf
this is something that the taxpayer should seek tax advice on. The interest won't always be deductible.
