Hey everyone,
I’m looking for a home loan and I came across this product called Aspire from Wealth Maker Home Loans and wanted to get everyones thoughts on it. Basically the loan has 3 components:
1. Home Loan (standard variable rate)
2. Investment Portfolio ASX 300
3. Gap ProtectionHere’s a brief run down of it. The home loan is like any standard variable rate home loan that you obtain with any of the big 4 banks, however 30% of the monthly principal repayment will be automatically invested into the ASX 300 investment portfolio (top 300 companies listed on the ASX). This means you won’t have to fork out extra money to invest in the ASX 300 The income generated from the ASX 300 investment portfolio is used to pay down the loan.
However the thing that caught my attention was that should the investment portfolio perform poorly and is less than the outstanding loan balance at loan maturity then the built in Gap Protection will kick in and repay the difference. This In short it allows you to pay off their mortgage whilst simultaneously accumulate wealth for the long term with no downside risk.
Thoughts???
Here’s the website link: http://www.wealthmakerhomeloans.com.au/
i would be concerned that it is not tax effective.
You would probably be effectively paying cash for an investment. If you could instead pay all the loan amount off the loan and then borrow the extra money to invest into the same share investments then you would be paying off the non deductible home loan faster.
The 'Gap protection' will probably involve the purchase of an option so there will be fees for this too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I gave them a call about this, however they have assured that it is a tax effective investment and operates as if the loan is being redraw and used to invest in the ASX 300.
I found the fees for gap protection, is $25 per $5000 in loan amount. I was considering taking out a $500k loan so thats $2,500. What do you think?
If it operates like a redraw that concerns me even more. That would result in a mixed purpose loan so how do you distinguish the interest deductible.
Also make sure they are authorised to give this sort of advice – AFSL licence or an authorised rep of a licence holder.
Also what are their fees?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The investment component operates as a separate line of credit account so I guess that’s how its distinguished for the mixed purpose. Is that still a concern?
They have a credit licence and AFSL so it looks fine from that end.
I spoke to the broker and the fees are:
$2,950 product packaging fee (tax deductible)
$25 loan servicing fee (tax deductible)
Interest rate of 6.6%If it is a separate loan, the loc, then that is good. You must have equity to do this then
Good that they have a license too.
But who is the lender? 6.6% is very high at the moment. I hope the main loan isn't a LOC.
Not sure about the fees being deductible up front. Seek your own tax advice.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry.
Wealth Maker Home Loans is the lender I believe. Yeah it is higher by a few basis points, but I guess the investment will make up for it. What’s the going interest rate at the moment?
There is no redraw against equity for the LOC in the investment property, which is great!
If they are the lender then they would actually be the mortgage manager, This would mean the loan is mortgage insured no matter what the LVR. This may not be a concern but if you are aiming for multiple properties it could restrict you.
Rates will depend on the size of the loan some majors around 5.85%
Also you could do this on your own too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hayate69 wrote:There is no redraw against equity for the LOC in the investment property, which is great!I am not sure what you mean here?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw wrote:If it is a separate loan, the loc, then that is good. You must have equity to do this thenGood that they have a license too.
But who is the lender? 6.6% is very high at the moment. I hope the main loan isn't a LOC.
Not sure about the fees being deductible up front. Seek your own tax advice.
You mentioned you need equity to do this in the above post. But you don’t actually need equity as it does not borrow against the equity in your own home.
Terryw wrote:If they are the lender then they would actually be the mortgage manager, This would mean the loan is mortgage insured no matter what the LVR. This may not be a concern but if you are aiming for multiple properties it could restrict you.Rates will depend on the size of the loan some majors around 5.85%
Also you could do this on your own too.
How would you be able to do this on your own? You would have to fork out extra money to put into the investment. Whereas this doesn’t require you to do that. 30% of the principal repayment is put into the ASX 300 fund.
Hayate69 wrote:Terryw wrote:If it is a separate loan, the loc, then that is good. You must have equity to do this thenGood that they have a license too.
But who is the lender? 6.6% is very high at the moment. I hope the main loan isn't a LOC.
Not sure about the fees being deductible up front. Seek your own tax advice.
You mentioned you need equity to do this in the above post. But you don't actually need equity as it does not borrow against the equity in your own home.
To set up a LOC you need equity
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hayate69 wrote:Terryw wrote:If they are the lender then they would actually be the mortgage manager, This would mean the loan is mortgage insured no matter what the LVR. This may not be a concern but if you are aiming for multiple properties it could restrict you.Rates will depend on the size of the loan some majors around 5.85%
Also you could do this on your own too.
How would you be able to do this on your own? You would have to fork out extra money to put into the investment. Whereas this doesn't require you to do that. 30% of the principal repayment is put into the ASX 300 fund.
You would borrow from your LOC and use all the principal to reduce your non deductible debt.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
From my understanding, you don’t necessarily need equity to setup a LOC. It just needs to be secured against your property?
The income from the ASX 300 investment will be used to reduce non-deductible debt.
You do need equity to set up a LOC. Max LVR is around 80% usually, some 90%
So if you had a property valued at $100,000 and a loan of $90,000 you could not get a LOC.
But if you had a $50,000 loan then you could get a $30,000 or a $40,000 LOC depending on the bank etc.A LOC is new borrowings, but undrawn initially.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
How would you be able to do this on your own? You would have to fork out extra money to put into the investment. Whereas this doesn’t require you to do that. 28% of the principal repayment is put into the ASX 250 fund.
How do they take 28% of the principle and divert it to the shares? Possibly by making you pay extra or having the loan as interest only.
If they could do it you could do it.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Exactly as Terry has mentioned.
You dont think they are going to give you some of their money to invest.
The funds will come from equity in your property.
All you would do is arrange the line of credit or similar at a cheaper interest rate invest these funds in a higher performing asset class than the interest rate you are being charged and chanel the surplus funds into the non deductible debt.
Remember you still need to pay Tax on the profit over and above the associated expenses so the rate would want to be very good.
We have been similar for years with clients who want to buy high yielding properties rather than ASX or US Stock.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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