loan structuring

Are these easy loan structuring mistakes costing you $$?

Over nearly 20 years, we have reviewed loans for 1,000’s of Aussies.  Often, we are helping with a home / investment purchase, but other times we are helping fix loan structure issues.  It is easy to make these mistakes and it is why it is great to talk to experienced people when planning your portfolio.

Here are 5 common things we see:

1.       Cash not being used in offset

What we see
We see cash sitting in term deposits or other ‘low interest’ accounts.  Some clients have reasons for this, others didn’t realise they could lower their interest payments by putting cash in offset.

The impact
Clients are paying more interest than needed.

The fix
Simple fix, we help clients set up an offset account for this cash to sit.  It is also good if salaries and rent are directed to this account.  The quicker money gets into an offset account, the better.

Thing to remember
Not all loans can be offset, we will need to advise you which of your loans can or should be offset.

 

2       Mixed use loan account

What we see
Eg, we see a client with $50k owing on their home loan, with $200k available in redraw.  They draw funds from this account to act as a deposit on an investment property, or to make repairs to an investment property.

The impact
Clients have a loan account with a mix of home use and investment use.  It is harder (and more time consuming) for your accountant to work out how much interest is tax deductible. Your accountant bill will get bigger.

The fix
We ensure that loan splits each have a distinct purpose.  Home splits and investment splits should be kept separate.

Thing to remember
Always remember exactly the purpose of each loan split.  Vision is very good at helping with that.

 

3       Cross-securing your loans

What we see
Loans secured by multiple properties.  A lot of bank staff will do this – it suits lenders to have your loans cross-collateralised.

The impact – 3 things

1      It can over-expose your home by having more debt secured against your home than you need

2      It is more work and more risk for you when you want to access equity for future lending or sell a property and discharge a loan. It requires more valuations and more credit assessment.

3      if one of your property goes down, you may be less likely to access equity from properties that have gone UP!

The fix
We will split your loans according to purpose and keep it clean.  You will appreciate this as you buy more property and borrow funds for different purposes.  We avoid cross -securing unless there are specific circumstances that require it.

Thing to remember
Having more loan splits may seem like more hassle for you, but believe us, it is worth it in the long run!

 

4       Investment property security = tax deductible

What we see
A client buys their first home (Property 1), pays it down, then they borrow up against Property 1 to help pay for their new home (Property 2).  Property 1 becomes an investment property, and clients think that debt is tax deductible.

The impact
Clients believe they have a new tax-deductible debt because of what is securing the debt.  Many tax advisers will tell you that tax deductibility is about the ‘fund purpose’ not the security of the debt.

The fix
This is hard to fix as it needs to be planned before you significantly pay down the loan on your first home.  If you think your first home will ‘ever’ become a future investment, we will encourage an ‘offset’ strategy from the outset. Talk to us.

Thing to remember
An offset v paydown strategy will need to be discussed with you in detail but it can have many long-term advantages.

 

5       Fixing too much of your lending

What we see
Clients see a good fixed rate, ring the bank, and fix all their loans.

The impact – 3 things:

1      Offset – it is harder to use cash for offset purposes

2      Lump sum payments – some lenders will penalise you if you make lump sum repayments

3      Break costs – there may be a financial penalty if you pay out the loan during the fixed rate period

The fix
There is nothing wrong with fixing some of your loans.  What we will do is talk to you about your plans over the fixed rate period.  That will help us work out how you can have a bit of EVERYTHING!

Thing to remember
Fixed rates can be good, but are less flexible, and can cost you $ if we don’t plan.

 

What Next?

It is a big part of our role to look after you over the course of your property life, so we recommend you Contact Us for a review –

  • Email us or call us on 1800 00 4663

  • We will review your existing loan structures

  • We will reaffirm your short and long-term objectives

We want to help!

 

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