Rate Reducer loan product

Hi,

I'm looking at refinancing my home loans (1 for PPOR and 1 for investment) and I have had a chat with Crown Money Management about one of their products called 'Rate Reducer' (Home - Crown Rate Reducer).

The concept is that the rate on your PPOR is very low, whilst the rate for your Investment property is bumped up. Each case is different depending on how much you owe, but for me I've been quoted for an initial PPOR rate of 2.54% and Investment property rate of 5.91%. Obviously the rate for the investment property is very high and I need to work out the sums to see whether the rates are worth it after deductions etc, but I wanted to get some feedback on the general concept.

I've clarified that the loans do not need to be cross-collaterised and from a 'legal' perspective, the ATO has given a specific product ruling about this product and endorsed it.

Has anyone else heard of this product? Any feedback/comments?

 

Can't find an option to edit so just post a reply instead. Initial rate offered was actually 3.54%. Also forgot to mention that the rate reduces for both loans as money is paid off - the minimum amount the loan could get to I was told was 2.5%

 

Yes there has been discussion on here before about them. I am accredited to write these loans and have been for about 2 years, but I have never written one, depsit being a tax nut.

Just be careful with the product ruling. Make sure it covers you and the product you are being put in.

 

This is the same product discussion here: 2.5% Home Loans

Basically a lot of fuss about nothing - whilst they may offer you a semi sharp PPOR rate, the investment side is pumped up significantly.

Do the numbers on otherwise having your PPOR loan on a strong variable rate which would only be a few points off what they're offering and likewise have the investment debt at a low rate - see which one works out better. The examples I generally see compare these products against market average rates and not the most competitive offers which can erode the value of this type of loan.

 

Its a mathematical magic....No apparent weakness in the strategy. I do note a lot of reference to a rate as low as 2%.which is a comparison rate of 2.56%...That may be the theoretical lowest and I question what a standard sort of deal may look like. I would like to see an example with the two loan rates (deductible / non deductible) as a guide.

For example is a 2% home loan possible alongside a 7% IP loan. (Nominal 4.5 avg) but I would question if reality says its more like 8.5 / 2.0 so its a high average AND when the comparison rate is used its not that attractive. It could mislead people into thinking bigger savings than a traditional loan but I do commend their difference.

In theory the ATO accept (at least until 30 June 2017) that they will tolerate a higher rate on the IP and a lower rate on the home. The PR means a taxpayer has a degree of protection and a private ruling isnt required. One risk with a product ruling occurs if the lender varies its product even slightly then the ATO can cancel the PR benefit and leave the taxpayer exposed. But I dont think thats a issue.

 

I have looked at this for a few high marginal tax rate clients, and even on an after-tax basis they were better off sticking with a standard bank because the weighted interest rate was much higher on the Rate Reducer product.

 

I met the owner Scott a few years back in Perth. He is a serial entrepreneur and seemed like a decent chap.

What I thought - a clever marketing ploy