Really need your opinions on home loan structures

Hi All,

I am divided on what I should do, I hope there are people here that can help me out.

Ive gone through a broker to source funding for an IP that settles in 2 weeks, and he's offered the following as the best products.

One that is funded through NAB, its a professional packages which comes to 6.46% with a $395 annual fee. This pro pak comes with 100% offset account, redraw and other features. The idea is if I take another loan, I dont pay any additional fees and I get a further 0.10% discount in the variable rate. 5 year interest only term, 30 years.

The other is the same product but the standard for 6.61% but no other fees.

My calculation shows the following:

18,204 @ 6.61% STANDARD LOAN

17,790.84 @ 6.46% + 3.95 = 18,185.84 PRO-PAK

Difference : $19 per year! WOW!

Now, my fear is that the interest rate difference is variable, whilst the annual fee is fixed which means I stand to lose in the mid to long run should they increase the rate higher compared to other banks at any time.

Obviously the added features is nice but not sure I want offset due to it reducing the amount I can claim at tax...dont see myself using any of its other "professional" features.

What do you guys think? What would you go for?
 
Hi All,

I am divided on what I should do, I hope there are people here that can help me out.

Ive gone through a broker to source funding for an IP that settles in 2 weeks, and he's offered the following as the best products.

One that is funded through NAB, its a professional packages which comes to 6.46% with a $395 annual fee. This pro pak comes with 100% offset account, redraw and other features. The idea is if I take another loan, I dont pay any additional fees and I get a further 0.10% discount in the variable rate. 5 year interest only term, 30 years.

The other is the same product but the standard for 6.61% but no other fees.

My calculation shows the following:

18,204 @ 6.61% STANDARD LOAN

17,790.84 @ 6.46% + 3.95 = 18,185.84 PRO-PAK

Difference : $19 per year! WOW!

Now, my fear is that the interest rate difference is variable, whilst the annual fee is fixed which means I stand to lose in the mid to long run should they increase the rate higher compared to other banks at any time.

Obviously the added features is nice but not sure I want offset due to it reducing the amount I can claim at tax...dont see myself using any of its other "professional" features.

What do you guys think? What would you go for?

I'd ask myself if the difference between the 2 is material as well as the materiality of the impact on the financial outcome I'm trying to achieve. If it is not material I would not waist to much time on it.
 
If you've got two weeks to settle you dont have a lot of time to stuff around so it looks like he's trying to place the deal where it'll get you through. Me, I'd take NAB but then I dont know the other option/funder who'll get it through that quickly.

If you can extend your settlement time out another week it'll open up your options - subject to fitting their policies etc

Just to clarify - do you mean settle as in 'exchange property ownership', not have 'finance approved' but the exchange happens 2 weeks later so its really 4 weeks
 
Do you have a PPOR already?
If so, definitely have an offset against that loan
If not, you should still open an offset account against the IP loan, then you won't have to pay tax on any interest that the money would otherwise sit in an interest bearing account. You still come out on top even though your tax deductible interest is slightly reduced as you've pointed out.
 
Hi Daniel,

I'm not sure if I've read the question wrong but if the pro-pack is going to cost you slightly less and offer additional features (which may not appeal now but might later) then why would you not take that option?

Either way, two weeks will creep up very quickly. I'd be submitting an application asap.
 
I was going to use the offset against the IP, but the broker told me it would be better to place my 50K into a high return savings account and attract high interest whilst maximizing my tax deductables.

Is this correct?
 
Daniel, that is a very strange loan set-up if u ask me and that advice about putting money in bank account not offset also seems strange to me. lots of brokers in NSW on this site who know what they are doing, an in person appointment is probably the way to go with one of them.
 
I was going to use the offset against the IP, but the broker told me it would be better to place my 50K into a high return savings account and attract high interest whilst maximizing my tax deductables.

Is this correct?

That is strange, if we assume your marginal tax rate is 30%, $1000 placed in the high interest account would earn, say, $50 in a year. But you'd be taxed $15, so you are better off by $35.

If you place the $1000 in your mortgage you save about $65. With negative gearing you get back $19.50, so you are better off by $45.50.

Basically tax deductability / negative gearing comes about when you make a loss.... through NG you make a smaller loss than you would have otherwise made. You still have to make the loss in the first place!! I would always go with an offset account, your net position is generally better off.

However I think you should apply for your loan quick smart, because if you need to delay settlement the penalty interest can be a LOT and it's really not worth dithering about loans right now!

Personally we went for the pro-pack because we knew we'd buy more IPs.
 
Thanks guys Im going to do my calculations and see which one works out the best.

If you are all interested i'll post my findings with real-world numbers for the benefit of improving knowledge.
 
Can someone explain to me how to calculate how much I can calculate my negative gearing?

Example, Gross salary is $75,000
Interest accrued in all accounts for the financial year is $1,300

Thus my current tax liability is the following:

$4,350 + 30c in every dollar over $35,000, which comes to $16,740 in taxes paid for the year.

Now let's say I ran a loss of $6,518.17 in my investment property for the year (interest only), I believe that means that I can offset $4,562.72 which therefore equals a total loss of $1,955.45.

Is this correct? If so, whats the next step in calculating negative income against my income?
 
Al right, Ive figured it out and this was the result.

Doing it with an offset account and plucking 50K into it results in a savings of just over $2000 over keeping it in a high-earning savings account.

Screw these brokers!!! They don't know what they are talking about.
 
Al right, Ive figured it out and this was the result.

Doing it with an offset account and plucking 50K into it results in a savings of just over $2000 over keeping it in a high-earning savings account.

Screw these brokers!!! They don't know what they are talking about.

Sorry you had a bad experience mate, but a couple of points. Essentially the broker has got your loan structure right, offering an offset account. Remember a broker cannot give tax advise, nor investment advise. He can point you to information or reports etc, but certainly not offer investment advise.

The problem is, there a few accountants that don't grasp investment property. A broker cannot know what tax rate your on, that's up to your Accountant to figure out. A broker can only make assumptions. So my advice is to find a good accountant, but then don't use them for "mortgage" advice either. Really the two should be working together.
 
Sorry you had a bad experience mate, but a couple of points. Essentially the broker has got your loan structure right, offering an offset account. Remember a broker cannot give tax advise, nor investment advise. He can point you to information or reports etc, but certainly not offer investment advise.

The problem is, there a few accountants that don't grasp investment property. A broker cannot know what tax rate your on, that's up to your Accountant to figure out. A broker can only make assumptions. So my advice is to find a good accountant, but then don't use them for "mortgage" advice either. Really the two should be working together.

Hi,

Sorry I did not mean to offend brokers as a whole, I understand there are good and bad brokers just like in every profession. It is just so frustrating when I am told that certain professionals are there to structure your loans correctly (this broker took all my information and so he was aware of all my financial details) and still get the wrong advise. It's come to the point now where everything I am told I have to go back and re-do the numbers myself to verify what I am told because 99% of the time the information I get is incorrect.

Again, no offense meant, just a general lashing out at what I perceive to be a constant stream of false information and advice.
 
Hey didn't take offense at all and understand your frustration. In structuring the correct loan I thought he did a pretty good job. Where he went wrong is offering 'other' advice. I think once we brokers go outside the finance area we can only make assumptions. You have joined the right forum to research re-world assumptions.
 
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