Strategy: Using AMP’s Master Facility to Debt Recycle

Discussion in 'Loans & Mortgage Brokers' started by Terry_w, 14th Jan, 2017.

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  1. KittyCat

    KittyCat Well-Known Member

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    Hi Rolf, what's the advantage of Global limit for debt recycling? If I need to create a split to claim interest used in investing couldn't I use most providers?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    with a global limit such as AMP you can change loans around, and products, at will.

    For example on the AMP product I have a client who is using a LOC to pay for expenses on an investment property. When it reaches $10k that LOC will be combined with the main PI loan for that property and a new LOC established (by reducing the main residence debt).

    With most banks you can split, but changing from PI to IO or to a LOC will mean a reassessment is needed.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    With many a bank you actually need to make a full loan app.............................. to split a loan DOWN, and with most you need a new app to increase a limit

    An active/managed DR strategy requires regular loan limit variation, and one may end up with 20 or 30 splits......not an issue per se, just clunky.

    Not really an issue with the traditional property investment scenarios, but a hassle where one DCA's into the share market for eg, or caps investment property costs other than interest.

    ta
    rolf
     
  4. KittyCat

    KittyCat Well-Known Member

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    Thanks for explaining Rolf....plan is to DCA into the share market. The AMP interest rate is higher but i had not realised loan splits may require new applications. The rate is justified though given what you have said. Could you create a split for 200k and DCA into market without the need for a new split? Could I draw the money and have it sit in an offset and pay down principle until I start DCA?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You could but why would you want to do this?
    You could leave it as a LOC without the balance reducing and the convert it to a PI loan. Avoids the tax issues too.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Pulling the cash and place into clean Offset may work - seek tax advice, im not one of them.

    Thats still a band aid strategy for a DCA strategy

    Rate isnt often an issue here with an active/managed strategy.

    What lender are you with now, why and whats the total loan amount ?

    ta
    rolf
     
  7. KittyCat

    KittyCat Well-Known Member

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    Hi Rolf, only looking to borrow 400k. I'm still researching providers and options. The reason I thought to create a split with offset rather than a LOC for the 200k to be invested in stocks is that the off set will enable us to reduce principle faster whilst using DCA into shares + taking advantage of lower interest rates and fees. The other 200k would go towards prop that we will live in.
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    A good strategy might be to work out what loan needs NOW and in the future are a must, and what isnt acceptable.

    And then find a lender that will do same at lowest over all cost.

    In something like an active DR strategy, youd want the capacity to split down that 200 k non ded split at the very least, to then further invest as u did with the 200.

    Rates and costs actually come in quite low on the decision tree for most borrowers when they do their assessment that way, because the rate cost is less of an impost than the lack of product flexibility.

    ta
    rolf
     
  9. KittyCat

    KittyCat Well-Known Member

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    Yes I guess you are right, I've suggested an option for a cheap investment loan. The better option might be to pay down the loan on prop with income generated from investing and then have the ability to create new splits to continue borrowing to invest up to the master limit possibly selling off shares to keep it going indefinitely.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    that is the ideal way to debt recycle.
     
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  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    An active/managed strategy uses that concept............

    The rate focus is not dissimilar to buying a performance car that requires 98 Octane Premium Fuel, but we dot want to spend the money and run 92 in the thing and it will never be what it was meant to be .........

    ta

    rolf
     
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  12. KayTea

    KayTea Well-Known Member

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    Has anyone used the Suncorp loan splitting option to recycle? Experiences?
     
  13. ChrisP73

    ChrisP73 Well-Known Member

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    @Terry_w question: why is the LOC required when you can transact directly from the loan account? Why not just increase the loan by 10k and then pay expenses directly?
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes. Suncorp used to be pretty good with splitting loans after settlement. Haven't tried for a while but have heard someone say they wanted to reassess their loans if splitting
     
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  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A LOC is compulsory under the facility. But you are right if you can pay directly from the loan this is good enough
     
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  16. Ozzy Battler

    Ozzy Battler New Member

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    Hi everyone, I have recently refinanced with AMP master limit to debt recycle via a share portfolio. This is what it looks like so far:

    Master limit= 600k
    PPOR= 400K P/I
    LOAN A= 100K LOC
    LOAN B= 100K I/O (share portfolio)

    I had them setup like this so I could buy shares straight away. Next I want to increase Loan B by 50k so I have funds available to buy more shares if a good opportunity arises. Seems pretty straight forward, fill out master limit restructure form, decrease Loan A LOC to 50k/increase Loan B to 150k limit (not fussed on a new split as I will be purchasing more shares in the same portfolio)

    I called AMP today to make sure I was going about this the right way, they didn't have much knowledge, basically told me to talk to my broker (he quit the industry days prior to my loan settling, saying my refinance was the final straw:mad: it took 5mnthso_O)
    I also asked when I have paid for example 50k off the PPOR and I have redraw available, how do I turn that into an Investment loan through the LOC, they again had no idea. I thought I would fill out the restructure form to lower my PPOR loan to 350k and increase the LOC by 50k then split into a new IO investment loan to buy more shares.

    Can anyone verify how its done, all the information I can find on debt recycling (including AMPs website) say the LOC available funds will increase as you pay down your principle, allowing you to recycle it into tax deductible debt.

    Any help will be much appreciated!
     
  17. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    What does your planner suggest ?


    typically, with the AMP Master limit, we can alter the limit of any product in the mix as long as the total product limit is not exceeded

    the form is a simple thing, pertinent bits below

    upload_2019-6-12_19-6-17.png


    ta
    rolf
     
  18. Ozzy Battler

    Ozzy Battler New Member

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    Thanks for the reply Rolf,
    so as long as I stay within the master limit I can reduce/increase any loan inc the PPOR. That way I pay down the Principle then increase the LOC/reduce principle loan amount. Create a new split loan or increase my existing investment loan by the same amount and so on until its all recycled into the investment loan.
     
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Yep

    thats the good thing with these type of features .......... vs many lenders that have zero capacity for anything remotely like this............but those B grades may have a lower rate, but often not actually.


    ta
    rolf
     
  20. Never giveup

    Never giveup Well-Known Member

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    Can DR be done by NAB loans?