I am sure everybody knows that credit cards often come with """goodies""" like, 0% on balance transfers, zero annual fees for period of time and so on and so on. But they also come with say 55 days zero interest periods.
In Australia it is commonly associated with 55 days interest period on purchase transactions only. That excludes direct account transfers and cash advances etc…
But how many of you do know what is precisely definition of purchase transactions (hence you do enjoy zero interest period of 55 days) is?
How do banks decide what is purchase transaction (zero interest) and what is not? Especialy in days of internet world.
What is stopping someone to organise 4 credit cards (each $50k) and purchase transact $200k each period to gain almost 0% interest on bad property loans? (PPoR for instance?).
It must be purchase transaction not balance transfers or transfers…or anything else…
Plus what is stopping anyone to go to bankers/lenders and say. "I choose you bank" to give me investment loan if you pay my PPoR or bad depth or at least you reduce my interest on PPoR to zero:)
You will find anything except a cash advance is a transaction that qualifies for the interest free period. You could buy a car or a house on credit card (one of my clients had $250,000 in credit cards!) but when you buy the merchant will charge you a fee of around 1%. So on a $200,000 house the fee would be $20k which would defeat the saving of interest.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
1% of $200k = $2k
If bad debth people have called PPor is say $200k on house with value of $400k say. The interest is say 6.5%. Anyway people would pay $1k each month on interest before they start paying principal.Everyone knows that one strategy is to leave 100% salary income (any income) in offset account while purchases are done by creditcard with 55 days interest free period.
But what if people do find a way on spending $200k each month (purchases by banks definition) and pay it back before due dates?
Even with 1% charge wouldn't people save 5.5% if their loan is 6.5%? Simply because loan balance would be close to zero hence no interest and fee is 1% so eventualy loan costing 1% ?
Plus on the second issue whouldn't be a new bank interested in locking investment deal with potential client canceling interest on PPoR loan with competition lender? In some way it already exists in form of banks saying 0% or 2% on balance tranfers but for some reason only for 6 or 12 months maximum.
Sorry, my mistake
Your biggest problem would be getting credit cards with that large a limit. If you could do it then it may work. You would then refinance the cards with another lender. I did this once with one bank, got a $20k cash avdance and then transferred the balance to another lender for 3.99% for the life of hte loan. This was when interest rates were higher too, so good savings. I bought a car with the money
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Since this is a creative investing:) I guess the message is that thinking outside of box is good, manage risk well and ALWAYS negotiate with lenders because at the beginning the balance of power is on borrowers side… (well in most cases).
It is interesting that you consider biggest bottleneck in getting the creditcards. 4 x $50k should be ok. in my mind the difficulty was around definition of purchase transaction that qualified for 0 interest. Isn't that interesting that on one hand property loans are set at 7% and at the same time banks are happy to make "lousy" 1% utilising spare cash… It is only a little cherry on top of the cake.
Similar to wiriting options getting a small fee (1%) for almost nothing because if other party decides to exercise their right to sell shares than you buy share cheaper. That's all… I do it often on blue chip companies I would not mind to own anyway. Not a big income but helps.
I should add that my balance on that 3.99% for the life of hte loan was $24k. I just paid it out because rates had dropped and I rang up to close the card. They offered to send me a cheque for $24k and give me 3.99% for the life of that repayment of the $24k. They are hoping you will be tempted to use the card for something else and then get on the 20% pa cycle. I declined their offer.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
One of the biggest problems is having a vendor selling a property that accepts credit cards. If I go to hungry jacks and buy a whooper with my credit card it’s a purchase, but if they didn’t offer eftpos and I had to take money from the ATM to buy my food, then I would be paying the higher interest rate.
Another one…
If someone would have $170k outstanding balance on PPoR house valued at 400k and no other commitments and say $180k gross income what options bank manager could have on smart offer to engage such person as long term IP's client (investor) but only under one condition. The banker would have to find a way how to fully pay PPoR (scrap or hide the $170k in IP's) so the person would fully own the PPoR while taking on 1 or 2 or 3 IP's…
Surely there must be a way how a smart bank manager can do that because person wants to own the PPoR outright instantly on one hand while banker is only interested to get 6 – 7% return on IP's + $170k he pays the PPoR off.
You can switch your loans around but the important thing is tax deductibility. Paying one loan out with another doesn't change the purpose of the loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
That was not the intention. That would be too simple. I was suggesting that as far as banker would pay off the PPoR I would not care how and what ways he/she would apply to recover $170k as far as it would be inside IP's. You have however good point in there that it would probably have to be $170k + Tax on income so the $170k would be after tax. Than the $170k + tax money would be legitimate for IP's tax deductibility/depreciation on IP's. To minimize the Tax on income portion the $170k + tax could be paid by banker over longer than 2 years to party with zero income – wife for example? Alternatively as second best accept the reminder loan of $170k but zero interest for as long as IP's are in place…? etc. etc.
All I am saying is that if only bankers would be more creative the smart offers would start coming onto the market. Since they have plenty main stream demand the choices are somewhat limited…
You must be logged in to reply to this topic. If you don't have an account, you can register here.
