evergreen loans
- Thread starter remingbi
- Start date
Evergreen is a term more used for the IO portion of a loan, more commonly LOC
Sounds nice............. but
many of these no fixed term loans have potentially onerous clauses around "redraw" ( ie when your money becomes their money) and "repayable on demand"
For many clients, an IO loan with 100 % offset and an Io term of 10 to 15 years serves a similar purpose, most of the time
ta
rolf
Sounds nice............. but
many of these no fixed term loans have potentially onerous clauses around "redraw" ( ie when your money becomes their money) and "repayable on demand"
For many clients, an IO loan with 100 % offset and an Io term of 10 to 15 years serves a similar purpose, most of the time
ta
rolf
quite a few will allow a capping of interest, CBA has always been that way............ although you can sorta get away with it for a while.
ta
rolf
ta
rolf
Capitalising interest is a bit of a dangerous game to play. I've seen this get out of control quite a bit with LOC products. It seems the money never lasts quite as long as it was planned to. It does tend to also lend itself to tax problems if not used correctly so it's important to get very specific advice from your accountant about how the money is used.
* Is capitalising of interest absolutely necessary? Could it be done another way?
* Outside of capping interest, what features do you actually want and why? "Evergreen," is a fairly abstract concept. What does it mean to you?
* Is capitalising of interest absolutely necessary? Could it be done another way?
* Outside of capping interest, what features do you actually want and why? "Evergreen," is a fairly abstract concept. What does it mean to you?
thanks for the reply pete
i was thinking if u had a loc on ip loan only and used this to pay all ip expenses such as rates, body corporate, insurance etc,BUT not any difference from negative geared properties as this could lead to probs with ato, and use that same amount to put into ppor loan to reduce it as a form of debt recycling.
I thought because the loc is not linked to ppor, could this b feasible.
The idea of not having to pay the principle in the 25-30 yrs for the evergreen loans was great instead of the max 10-15yrs now with normal loans. I think west pac had a good one, but not sure if it still exists
I wasn't sure if it was still available after gfc
thanks
i was thinking if u had a loc on ip loan only and used this to pay all ip expenses such as rates, body corporate, insurance etc,BUT not any difference from negative geared properties as this could lead to probs with ato, and use that same amount to put into ppor loan to reduce it as a form of debt recycling.
I thought because the loc is not linked to ppor, could this b feasible.
The idea of not having to pay the principle in the 25-30 yrs for the evergreen loans was great instead of the max 10-15yrs now with normal loans. I think west pac had a good one, but not sure if it still exists
I wasn't sure if it was still available after gfc
thanks
The strategy you're describing doesn't require the ability to capitalise interest. Any equity loan with reasonably transactional features could be used to pay for ongoing expenses. That would be covered by most LOC products. A few lenders also have variable loans which could achieve this as well. Whatever product you use, make sure you discuss with your accountant to be very clear on what you can and can't use this money for.
Capitalising interest can be what makes this type of strategy come undone, it's got the potential to create a taxation mess and ruin everything. Better to actually avoid that particular feature if possible.
Most lenders LOC products are interest only for their entire term. Do you really need this feature? A 5, 10 or 15 year I/O period is quite a long time, and if you're actively investing, odds are you'll restructure the loan within that period. It might also be argued that if a debt recycling strategy hasn't eliminated all of your non-deductible debt within a 15 year time frame, it's not being executed very well.
I have seen people execute the overall debt recycling strategy with a simple interest only loan and a dedicated offset account. It's been done with the full knowledge of their accountant and an ATO ruling. The managed to get rid of most of their non deductible debt within 5 years. (They had modest bad debt and good incomes. They then got divorced which messed everything up
).
Capitalising interest can be what makes this type of strategy come undone, it's got the potential to create a taxation mess and ruin everything. Better to actually avoid that particular feature if possible.
Most lenders LOC products are interest only for their entire term. Do you really need this feature? A 5, 10 or 15 year I/O period is quite a long time, and if you're actively investing, odds are you'll restructure the loan within that period. It might also be argued that if a debt recycling strategy hasn't eliminated all of your non-deductible debt within a 15 year time frame, it's not being executed very well.
I have seen people execute the overall debt recycling strategy with a simple interest only loan and a dedicated offset account. It's been done with the full knowledge of their accountant and an ATO ruling. The managed to get rid of most of their non deductible debt within 5 years. (They had modest bad debt and good incomes. They then got divorced which messed everything up
).
