A new tax effective loan product

G’day Terry..

The Canberra Building Society did that at my request in 1973.
It was fantastic until they were taken over by I have forgotten who.

Then they undid it on me… still 3 years was better than nothing.

The good old days

But there is always something…what IS the latest on the ATO appeal re capitalising interest on the investment loan?

Bill O’Mara

I’m pretty sure Mr Carmody would take a pretty dim view of this, just as he does the split loan. I’d be pretty wary of embarking on such a pretty blatant tax dodge.
Jim.

Just another thought Terry, I assume that there must be restrictions on the balance of private vs investment loan amounts, ie the lender certainly won’t tolerate your paying off all of the 7.74% part quickly to leave a large loan at 3.99% by itself.

Split loans are a lot simpler maths wise, and the best strategy is obvious, ie pay off the ppor bit first, but with your unbalanced rates, it is a bit less obvious. (unless you HAVE to keep the payments equal of course)
Jim.

Hi all,

Terryw, could you please let us know which institute is going to offer this super package when it comes out eventually?

Ok my night shift is over so I’ll say good night / good morning to you all and head home.

Michael

why not draw to 100% value of your i.p., pay off your ppor and then the whole lot is deductable, without the worry if the f#*^?#@ a.t.o agrees or not.

Ouch! Terry I just read the product info sheet. They want a total of about 7.4% of the loan spread over the first 5 years as an establishment fee. $37,000 establishment fee for a $500k loan. It seems that any tax advantage would be negated by this fee, or do I have it wrong?
Jim.

Thanks Steve, I thought it should be something like that, but it’s certainly not ovious in their info sheet. I had a loan with Tonto (via Qld State Home Loans) a while ago, and it had a $700 exit fee if I refinanced it within 3 years. I refinanced them after 3 years and one month, because I found them incredibly amateurish. Their internet access never seemed to agree with the written statement, and they couldn’t handle interest in advance without st***ing up all the maths. Their written statements were a real mess as well. Their initial establishment fee was $300 but they neglected to tell me that I had to pay for their solicitor as well, which was a further $600. Westpac charges me zero.

I see that the 7.74% part of this Tonto loan is IO with no principal recuction allowed. The maximum amount of the 3.99% part is 50% of the 7.74% part, which means that the average interest rate (if you max out the 3.99% part) is 6.49%. The only way that this loan could be viable is for us to keep the 3.99% part maxed out for the duration of the loan, ie never to pay out the PPoR part. This would still be feasible, because it’s just a tad over inflation, but in my opinion this loan is borderline value compared to a normal combination. I’ll have to do a more accurate analysis, but I’m pretty sure the benefit wouldn’t be worth the risk of upsetting the ATO.