LOC + NIVA vs 100% Offset

Hello All,

First, happy to find this forum and hopefully will learn more along the way.
I've searched/read some threads that has "mortgage reduction" mentioned. Can't help myself but to start one with regards to my current situation.

Last year, we joined a one-stop shop investment services (let's call it PF) that offers the so-called "mortgage reduction plan (MRP)". Not knowing a lot of things and blinded by the marketing hype we ended up refinancing our loan to an LOC + NIVA structure. This is based on their advise that this is the "best" structure to use for the MRP. The idea is to

At the moment, our PPOR is on this LOC+NIVA loan structure with the following details:

P&I : 7.69%
LOC ($27,500): 7.89% (where all income, rent, tax deductions from variation, etc. will be deposited)
NIVA ($2,500): 0% (monthly expenses)

We're currently applying for a finance for our very first IP. PF submitted our application to BOQ that will have the loan set at 7.16%.

On the side, we're talking to another independent broker who's saying that our current structure is costing so much more compare to if we have it under one lender who can offer 6.89% with 100% offset. We're also going to talk to an independent tax accountant to verify the numbers (I know, we should have done this before hand... :eek:)

At this stage, we're waiting for PF to provide us an updated 'Financial Investment Analysis' to prove to us that the LOC+NIVA structure is the way to go....though in my own number crunching, I don't see how it's better if it's costing us more to run it....

Sorry if I'm not making any sense here...Just totally confuse at the moment...:eek:
 
The rate is way too high and a LOC is not the sort of loan you should be using to pay down your PPOR debt. You will be in a bad tax position if you ever decide to rent this place out in the future.

What you should have is a IO (or PI) loan with a 100% offset and then a LOC for access to any equity.

Place all wages, incomes and rents etc into the offset and any investment expenses should be borrowed from the LOC.

Combine it with a visa card and save even more interest by keeping your money in the offset longer.
 
No need to compare numbers

Ive only been doing this for 12 years :)

the 100 % offset option at 6.89 with allied interest free credit card will blow the ING product out of the water in ANY cashflow analysis. THe ING product you are on has a flexible trail comm structure, hence the rate being higher than normal.

BOQ ???????? hmmm more oddities here.

Spend a little time with your independent guy, I reckon he will save you years off the MRP plan, if its properly put together

then there is the tax issue that Terry speaks of............
ta
rolf
 
Thanks Terry and Rolf for your insights. Much appreciated.
To add to our misery, we're passed the cooling off period for the investment contract. At this stage, we are waiting for the BOQ application to go through.

At this stage, we are pushing PF to produce the updated FIA, bring it to an independent tax accountant and get his advice. We'll then meet with PF and hopefully convince them to let us go or at least restructure our loan properly if they do really care for their client (wishful thinking here I suppose :().
 
There is no use in going back to the same mob if they are going to direct you into an inferior structure with a high trailing commission.
 
There is no use in going back to the same mob if they are going to direct you into an inferior structure with a high trailing commission.

That would be ideal. But at this stage, everything is kinda thru them.:eek: If we can get out of this IP then I suppose when can drop PF and never have anymore dealings with them.
 
Hi PL

I will do some quick sanity numbers with you :)

You may not need an accountant per se on the MRP.

322 PI over 30 years at 7.7 has an average monthly repayment of 2320 approx

322 PI over 30 years at 6.9 is 2121

Difference of 200 a month, just on the product interest

if you were to go across to the 6.90 offer from the independent broker and pay the same as on the ING loan ( 2320) the loan term would be reduced from 30 years to 24 years.

There is 12 repayments of 2320 = 27840 *6 years = 167 000

Over the term of the loan. Now this is a bit sneaky how I have represented it, for a number of reasons but its just fighting fire with fire.

BTW, thats with NIL extra benefit of smoke and mirrors, credit cards, tax variations investment property etc. Thats ALL additional.

Which one was the Mortgage Reduction Plan again ?? Based on those numbers you should pop over to the Independent broker and

In addition, this saving number would be even larger with the BOQ deal set up under a sub 7 % deal

Gee id like to be a fly on the wall when the PF sales person tries to get around those numbers :)

ta

rolf
 
Thanks Rolf.
I did a similar straight out comparison and here's the result. Am I on the right-track in terms of doing the numbers?

vi39ds.png


I compared the current structure to an ING Orange Advantage where it will give you 6.89% for loans > $500K. So basically combine PPOR and IP into one loan (cross-security I think is the term that my independent broker used). This is what I'm going to present to PF in our next meeting. Ask why they're saying that current structure will work given that it's costing me more per month. :confused:

The MRP itself is for both PPOR and IP going by the structure they've given as below:

2wd674p.png


I would like to see an accountant more so on the tax variation involve and the fact that in the future we do plan to convert our PPOR to IP.

I'm into IT but when it comes to numbers in finance, I'm totally out... :eek:
 
Hi

pretty much on the wagon !

If your independent broker is using the term Cross security (and not spitting on the floor at the same time) :) , then maybe you also want to think about finding someone that doesnt have that mindset. My life experience is how someone shows up in a particular way of thought process is usually the way they are in other areas of their life, You may do better with someone that thinks for your benefit..............and you can work with as a team.

If you have to fight with your broker, acct, FP etc on basic mindset and risk assessment issues, its going to be a long and bumpy road.

Usually, one doesnt need to cross to get the discounts.

Many brokers dont know this due to the fact they have been trained by different stake holders ( usually lenders) Or worse, dont care and because a cross means a LOT less work go down the cross collateralised path.

Cross coll isnt poison usually, and can actually sometimes be used to YOUR advantage, but in general should be minimised unless there is a CLEAR benefit to the borrower, and all the attendant risk and issues have been clearly explained

ta
rolf
 
He did use cross-security and he also mentioned splitting the loan where the PPOR will have an 100% offset account attached to it - but both still will carry the 6.89%...at least that's how I understand it.
 
the 100 % offset option at 6.89 with allied interest free credit card will blow the ING product out of the water in ANY cashflow analysis. THe ING product you are on has a flexible trail comm structure, hence the rate being higher than normal.

BOQ ???????? hmmm more oddities here.

So ideally I should have the following structure?

PPOR on PI with 100% offset account for all incoming funds
IP on IO with LOC for all investment expenses
Interest free credit card

Am I getting in the right thought process here?
Thanks again for all your help?
 
So ideally I should have the following structure?

PPOR on PI with 100% offset account for all incoming funds
IP on IO with LOC for all investment expenses
Interest free credit card

Am I getting in the right thought process here?
Thanks again for all your help?

Not enough data in the fuzzy details and logic, eg your money habits mid and long ter goals etc but.

A vanilla model

PPOR on IO with 100 % offset secured only to the PPOR
Separate loan on IO with redraw for the depsoit and costs for the IP secured only to the PPOR

IP loan IO secured Only to the IP

ta

rolf
 
I guess the goal really, as vague as it can be, is wealth creation. Objectives to reach this goal I suppose are:

- payoff PPOR mortgage asap
- tax minimisation
- convert PPOR to IP in the near future
- accumulate additional IPs along the way

With these in mind and having a combined family income of a little over $100K with 2 kids (10 and 2) and no other debts, is the vanilla model still a good foundation?

Thanks.
 
I guess the goal really, as vague as it can be, is wealth creation. Objectives to reach this goal I suppose are:

- payoff PPOR mortgage asap
- tax minimisation
- convert PPOR to IP in the near future
- accumulate additional IPs along the way

With these in mind and having a combined family income of a little over $100K with 2 kids (10 and 2) and no other debts, is the vanilla model still a good foundation?

Thanks.

Hi PL

Its a foundation.

But what you build on that foundation may not suit your actual needs, wants and risk profile.

Id suggest you sit with someone and expand on your ideas of risk reward, and what you really want, what you are willing to do and risk, and what your longer term goals are.

that will give u a better idea of how to go about finance for one thing.

ta
rolf
 
Back
Top