Strategy: Using AMP’s Master Facility to Debt Recycle

I think with most loans these days redraws can be made up until the limit of the loan is reach.

I don't draw any distinction between the two in my writings. Paying in a loan is what you do - deposit into the loan account is paying down the loan.

 

Thanks for posting this @Terry_w!

So just to confirm I understand it properly in a way I think I would use it.

PPOR Value = 850k
LOAN A = 500k (secured against PPOR)
LOAN B = 265k (master limit - LOC)
Offset = Against loan A

I decide I want to buy 20k of shares. So I simply go into my AMP online and create:
LOAN C = 20K which reduced LOAN B to 245k.

I then get paid my dividends and everything else I receive into my offset account and say I have another 20k.
I now reduce LOAN A by 20k by paying the money from offset into it and then I up LOAN B by another 20k again?

 

Further to that though just a couple of more questions.

Say I want to use some of the master limit for non deductible debt (say I want a new car).

Can I just buy the car for say 50k from the LOC and then change LOAN A to be 50k more and LOAN B now 50k less?

(appreciate if I ever turned my PPOR into an IP I have a mixed LOAN)

 

Basically that is it, but there is a form to be filled in to change loan products.

 

Yes, but you could split the loan first before using otherwise it would be mixed.

 

OK I think I get it.
So you would split the 50k into a new loan first. You would then buy the car. You could then after that point consolidate that split back into the PPOR portion?

I understand you could just leave it separate but say your a bit anal like myself. Is this possible and any harm (except for if PPOR becomes an IP later).

 

you could, but why?
That would create a mixed purpose loan and cause issues if you later rented out the house.

If the car is not deductible then this loan should be paid out first. Move the offset over to this and get rid of it quick. Then move into the main residence loan.

 

Thanks Terry
So one final question.

What is the reasoning behind paying into an offset and then paying the loan split in full as opposed to just paying the loan down each week?

 

Just in case you decide to move out.

 

Thanks Terry!
All makes sense. Regarding the paying down I was referring to a split used for non deductible that cAn never become deductible like a car.

I see where you are coming from though

 

Yes, you could just pay the car split off asap, but I would leave the money in the offset of the main residence split until the last minute before use.

 

The whole loan facility has a Master Limit - not just Loan B

Split 1 - 500K can be either variable with offset, or fixed.
Split 2 - 265K -

Total Master Limit = 765K

I would also point out that 1 x LOC loan split is mandatory for Master Limit but the minimum loan split only needs to be 20K. The LOC is dearer than the variable product, so pointless doing the entire 265K as a LOC. In the example you have used above, I would set it up as

1. 500K
2. 245K
3. 20K LOC.

This is a less expensive way to do it, as the 245K in Loan Split 2 can then be a cheaper product than the LOC.

Also keep in mind the product is extremely generous in the way it allows as many as 10 loan splits under the one Master Limit . So for a 765K Master Limit , you can do the following for example;

1. 300K Variable with offset I/O or P&I
2. 200K Fixed I/O or P&I
3. 80K Variable I/O
4. 80K Variable I/O
5. 85K Variable I/O
6. 20K Variable LOC I/O

The annual fee is the same whether you use 1 loan split or 6 loan splits or 10 loan splits.

OR

1. 200K Variable with offset I/O or P&I
2. 300K Fixed I/O or P&I
3. 50K Variable I/O
4. 50K Variable I/O
5. 60K Variable I/O
6. 85K Variable I/O
7. 20K Variable LOC I/O


OR

1. 500K Variable with offset I/O or P&I
2. 40K Variable I/O
3. 40K Variable I/O
4. 40K Variable I/O
5. 40K Variable I/O
6. 40K Variable I/O
7. 40K Variable I/O
8. 25K Variable I/O
9. 20K Variable LOC I/O

OR whatever combination works for you....


The real killer part of Master Limit is that money can be moved in and out of each sub account without needing to re-document the loan or make an application to the bank to have the money moved. It can be done online with a couple of clicks.

For example, if you use the 9 loan split example above - with 765K total limit, and drew down 30K from split 2 ( which has a loan limit of 40K) to buy a car, the 10K that is left over can simply be moved into splits 3,4,5,6,7,8 or 9 if you wish, and their loan limit would change from 40K to 50K , or from 25K to 35K. As long as the total limit of 765K is not exceeded, you can chop and change what dollar amount sits where, until the cows come home....

This allows you to customise things right down to the last dollar. For someone who is using equity to purchase properties or shares, this can be very handy for accounting purposes as you can precisely allocate individual loan splits to each deposit amount, for example.

AMP has also got zero cash out restrictions at any dollar amount, up to 85% LVR.

so no cash out restrictions.
10 sub accounts with a master limit
good rates
reasonable servicing calc

This makes the product , in my view, the best "hub" product for those who own a PPOR and wish to use the equity to fund deposits on multiple investment properties or shares. No other product offers this flexibility.... simple as that. For many clients its flexibility wont ever be fully utilised, but its really no dearer than most other offerings, elsewhere, so why not have all the bells and whistles ?

 

I usually get clients to set up a LOC - one for all the extra unused borrowings up to 80% LVR.

They can then use this LOC to pay the deposit on the next property for example. Once drawn down split the LOC and convert the LOC with the used money to a IO loan at the lower rate.

 

I just set up multiple splits up front... we have usually mapped out a purchase strategy for 3 or 4 or 5 purchases , so have a pretty good idea what loan splits are going to be required for each purchase.

Either way, it's a really handy product

 

Is it required to have a split each purchase, like keeping each property separate?
If you weren't using a master facility, could you top up the split for the next purchase of shares?

Would it be an issue having a loan that was used to buy different parcels at different times?
Or best to treat like IP?

 

Its not a requirement, but its a function that works with this product. Allows you to keep each split accurate to the last dollar and cent, for each purchase made, or each share portfolio transaction etc...

 

That would be a mixed loan. No real issues if all the use of that loan was for investment purposes as the interest would all be deductible and easily apportioned where IO.

But where the use is by different people there would be tax issues. e.g. LOC in 2 names and then 1 of them borrows to buy shares and one to buy property. Still easy to apportion but it will get increasingly messy.

If you have 10 splits it is easier to use them up and keep it unmixed.

 

The only bad thing (well not really bad), is that you need to fill in an application form to create a new split.

 

Your a legend @euro73, always appreciate the level of detail you go into with your posts and education on these forums.

 

Sorry had another question on this one Just on how the rate and product works.

Example:
500k PPOR at 3.85%
20k LOC (mandatory)
180k Master Limit

Say I want to create another 50k split from the master limit. What rate would be applied to this split?? Do I need to define that when setting it up? If so then surely everyone just says it's OO for a better rate?