In the midst of the change and reshaping going on in the Lending environment at the moment, we have found an interesting way for property investors to make worthwhile gains in paying off their Home Loan.
Let me talk you through a new product that may alter your understanding of finance for ever.
I think we would all agree that paying off the family home is the goal of every Australian. Thankfully, that goal has become a lot easier thanks to an innovative loan product that every investor deserves to consider.
Innovation is a word frequently used but rarely deserved. In a finance world struggling to come to grips with Regulatory overview of almost everything in our lives, it’s good to see some genuine innovation in the Lender space.
How would you like to take advantage of a market leading low interest rate on your home loan while maximising the taxation benefits on your investment property? Finance may never be the same again for investors interested in protecting the family home and reducing their home loan debt in the fastest way they can.
One lender in particular is reshaping the way we think about loans, split loans to be precise.
When we talk about a split loan most people would understand it to be part variable interest rate and part Fixed Interest rate. Hedging your bets from interest rate increases is usually the strategy behind it. For example, part variable so you can repay extra funds and a fixed portion to keep repayments stable.
But now there is a new twist.
Rather than thinking of a split loan, try thinking of split properties as well. Imagine a loan, split into two or more portions using your home and one, or more, investment properties.
This loan is based on one common rate, split into two or more portions, within set parameters usually without linking securities. Above these loan splits is a variable interest rate that can be separated into two or more portions, one for your home and one or more for the investment property or multiple properties if you wish. The Home loan is P & I with Offset while the Investment loan is I/O with the normal tax benefits still applying if you had them before.
These interest rates can be altered to reflect different portions that you choose within a certain minimum range. So just to keep it simple and purely as an example, let’s say the common rate was 8%, you could allocate say 2% to your home loan and the remaining 6% to your investment loan.
The existing loan amounts don’t change but the interest costs do. Think of it as refinancing your home Loan to a much lower interest rate and refinancing your investment property to a higher rate, but with an interest only term.
I can see a huge upside here.
The more money you can pay off the home while you have such a low interest rate, the better off you are by reducing the Home Loan debt. Of course you can also use the Offset facility to keep control of the money or simply pay off the balance and use redraw. It’s up to you.
Keep in mind that the facility is not about the investment properties, it’s about keeping the family home safe by reducing the debt significantly while you have the chance.
I feel this is a strategic play to protect the family home rather than an investment opportunity.
Some people may think that paying 6% is too much. Unfortunately Investment loans are more expensive than ever these days with the average around 5.1% and even though I hate to say it, 6% is not out of the ordinary.
The other issue to keep in mind is that even if you have a low interest rate now, when the time comes to refinance your investment loans or the I/O term finishes you will find the market is not as generous as it was when you took the loan out in the first place.
Besides, a low interest rate with an Offset on your home loan gives you an opportunity to reduce the debt much faster by incorporating extra repayments at the same time. The trade-off is a higher rate on the Investment property which might provide higher negative gearing, providing you had it previously of course.
Protecting the family Home is rule number one for any serious investor and here is an opportunity to perhaps pay off the debt or make inroads to reducing it.
There is a lot of talk about higher rates, tighter credit rules around Interest Only facilities and lower loan capacity for investors making it tough to do anything. I think there is always something you can do. Why not consider targeting your Home Loan debt right now? This is a real chance to make a serious dent in your Home Loan balance.
So for anybody who has an investment property about to go to P&I or perhaps anybody that has been told they can’t do anything, this new style of loan could prove to be a big advantage.
Call us today on 1300 663 836 to see how the future of Finance fits into your situation.
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