Question about PPOR Mortgage & Share Investment

Yes @Terry_w I have read this loan structure, I like the idea of all income going into the offset and putting expenses on an interest free credit card..

Just so you get a better understanding of my situation, I would be investing in shares in an index fund that returns (on average) 11.6% (roughly half dividends/half growth).

My current loan is a P&I PPOR with an LVR of about 95% (I know - I need to improve this, part of my goal this year). My current interest rate is 4.29%.

Using my current loan with the low interest rate, I could use a LOC (Would need to get LVR below 80% first), with a rate of 5.87%.

OR

I could refinance my CBA loan into a Standard variance IO loan, with an interest rate of 5.22%.But would have the benefit of freedom in setting up splits to draw down and flexibility.
The downside would be a slightly (about 1%) higher interest rate than the previous set up..
I could set up something similar to your Tax Tip #13 structure..

Just by looking at this at a high-level, personally, what would you opt for ?

 

With a :VR of 95% you would have paid considerable LMI so I would be reluctant to move especially with it not being deductible.

 

Your broker should be able to bring this down significantly if you're taking the MAV package. Will most likely be mid to lowish 4% at the high LVR for the IO SVR. Probably around 4.75% (ish) for the LOC splits if that's how you decide to go.

I'm not sure why this is such a big deal and your broker isn't taking charge of it - it's actually quite straight forward (unless he/she is used to set and forget owner occupier loans, which may be the case).

You are maybe confusing what a LOC is - it's just a loan product and you can switch your current loan into a LOC very easily - as I said before, just a form with CBA. No need to draw on equity and no need for a new application.

Because you've paid such a large amount of LMI, just splitting and switching the loan to an appropriate product/s and changing to IO will be a much better option than refinancing to another bank.

 

Thanks again for the responses guys,

You're definitely right about the refinancing, that's not really an option. @Terry_w

With that MAV discount you mentioned @Jess Peletier , it seems you're right.. I think the best thing would be switch to the standard variable rate
for that flexibility and ability to offset/split, the MAV discount will reduce my rate to 4.72%.

Now just to work out WHEN to change over, the house is currently being built at the moment, so it's only interest only, currently paying 4.29% interest which is pretty good for the time being, I don't really see any benefit to change over just yet.

Not sure if you have any thoughts about that? if not, thanks again for all the assistance!

 

hello Taylor
A quick question about the Noel Whittaker book you read. How old is it? Why I ask is that he has done some great stuff but if it is a very old edition, the products Jess, Rolf and Terry mention may not have existed. For example I just looked through my copies first published in the 1990s and there is no VAS or LOC in the indexes.

 

Hi @Angel ,

I'm using one of his latest editions.

He doesn't specifically mention VAS, which is an ETF, I did my own research for this.

I'm relatively sure there is discussion of LOC's in my edition.

Hope that helps.

 

All good then.