- machg1022Participant@machg1022Join Date: 2009Post Count: 2
I have not been to this forum since a long time ago as I had other personal commitment last few years. I just need some comments from different ones regarding below.
I recently heard from a friend regarding a new product called “Loan Reducer” from Crown Money Management. Basically it is a product aiming to make you pay off your own home loan faster. As you pay off your owner occupied home loan, the variable rate reduces until you reach the lowest interest rate of 2.5% pa. (This is adjusted by the Loan Reducer product).
To qualify for this product you must have an investment home loan to start with. While you pay off a lower rate for your own home loan, your investment loan rate will increase up to a maximum of 5.99% pa.
The product promotes that 1) you pay off your own loan faster, and 2) with higher interest rate on investment loan, you maximize the tax return from the interest.
Here is the website for your reference: crownmoneymanagement.com.au/finance
Has anyone heard of this product before? Is it worthwhile to have a go?
ThanksBennyModerator@bennyJoin Date: 2002Post Count: 1,416
I don’t know that group – but this comment sounds of concern…
with higher interest rate on investment loan, you maximize the tax return from the interest.
I would think the Tax Office might take a pretty dim view of that idea….
I’d be interested to hear what others have to say,
BennyTerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
Many brokers have access to that product under different labels. There is a product ruling from the ATO saying that Part IVA won’t apply. But just check that the names on the product ruling match the names for the company offering it to you.Tony FlemingParticipant@the-dark-knightJoin Date: 2008Post Count: 396Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
There’s a product ruling for it and a new of brands offering the loan – we’ve had access to the product for a few months now. Dependent on the exact figures of the owner occupied and investment property loan, it can be quite beneficial.
Keep in mind there are a lot of requirements for this loan – which are for the clients benefit, ie the owner occupied loan must be principal and interest, accelerate home loan repayment etc.Jason TyrrellParticipant@jason-tyrrellJoin Date: 2016Post Count: 6
The two rates are inversely siding to a mean of 4.25% (average of 5.99% and 2.5%). Will depend on the weighting of the two loans of course.
4.25% is ok but can and bettered. Can’t comment about fees and possible traps in the loan contract, maybe making it hard to re-finance.
An Inv loan would be I/O and O/O would be P&I. It suits them to have the debt remaining at 5.9% for an investment loan (very high), whilst O/O debt is gradually eroded.
As the P&I erodes, the impact of the lower rate for this loan becomes less important. If 20% of your debt is 2.5% and 80% is 5.99, your overall rate at the time will effectively be 5.3%, which is not competitive.
Also, tax benefits hard to know without details such as your anticipated tax bracket (inc rental income) etc. Like any gearing, it is only a refund of 20-48% of a 100% cost.
More questions would have to be asked.Dave WardParticipant@dave-wardJoin Date: 2004Post Count: 37
I have now built my own tool to establish the benefit for a borrower under this loan product, where all variables can be applied for the individuals circumstances. After spending 8 months building it and now being on the verge of having all calculations fully audited and signed off on by Grant Thornton Accountants (one of Australia’s big 4), I can say that the product is 100% legitimate and worthy of investigating if you have a PPoR and Investment loan structure (provided you don’t have current rates locked in at under 4% p.a. for each loan).
As Jason has pointed out, the loan is charged at 4.25% p.a. on the aggregate loan balance with a minimum loan rate on the PPoR side of RBA cash rate + 0.50% and maximum rate of RBA cash rate + 4.15% on the investment side. In the current investment environment, this would mean your PPoR could be as low as 2% and investment loan as high as 5.65% p.a.
The loan rates are then re-calibrated on the outstanding loan balances either every 24 months or when the RBA cash rate changes (whichever is the sooner).
I will put an example of a real deal that was done in the past week to give you an idea of how it worked out:
Him – $80,000 p.a.
Her – $35,000 p.a.
PPoR Loan Amount – $265,000 (IO)
PPoR Current Loan Rate – 4.54% p.a. (ANZ)
Remaining loan term – 29 years
Scheduled Mortgage Repayment Date – Oct 2045
Investment Loan Amount – $491,500 (IO)
Investment Loan Rate – 4.45% p.a. (ANZ)
Remaining Loan Term – 29 years (aligned with PPoR – but as we know it will need to be rolled over in 5 years)
Rental Income – $460 per week
Vacancy Rate – 3% p.a.
Rates – $1,650 per annum
Water Rates –
In doing an analysis I like to make the monthly repayments after tax dollar for dollar so they are no worse off from a cashflow perspective that what they are on their current loan structure. Once this is set up, I can supercharge the interest saving without the borrowers having to pay an extra cent into their loan structure (as I’m sure you all can). With that being the case the new loan structure looks this way:
Home Sooner PPoR Loan Amount – $265,000
Home Sooner Loan Rate (Day 1) – 2.00% p.a.
Home Sooner Term – 30 years (although repayments are calculated on 29 years so the term is at worst the same time)
Mthly Repayment Results in year 1
PPoR Loan Existing – $1,370.98
Investment Loan – $1,830.06
Total – $3,201.05
PPoR Loan Home Sooner – $1,064.17 (2.00% p.a. including an additional loan repayment of $60 per month to even out monthly loan repayments between 2 loan structures)
Investment Loan – $2,276.29 (5.54% p.a.)
Total – $3,340.46
Post Tax Home Sooner total out of pocket cost (year 1) = $16,368.63
Post Tax Existing Structure total out of pocket cost (year 1) = $16,353.59
Loan Paid on under Home Sooner Structure – August 2043 (saving of 2.17 years on loan term)
Total Repayment Saving to borrower – $86,761.38
Without doing anything else in this borrowers case aside from paying the exact same amount of loan repayments from day 1 as they were before (this reduces with time and becomes less pre-tax in 2026), they save $86K.
If the borrower has the right ratios and doesn’t have existing rates in the low 4% range, it is a no brainer.
There are no fixed term periods or fixed rates, so the borrower can refinance at any point, but essentially there is no reason to do so.
We will have an online calculator available for borrowers to insert their details in and figure out what (if any benefit) would be available to them in around 3 weeks.
I have been building and auditing the numbers in this calculator for around 8 months now (started in May 2016). I thought it would take me 15-20 hours to build the model, but I was slightly incorrect on that one :)
Ask any questions you may have.
Dave.TomParticipant@thebeardedbrokerJoin Date: 2016Post Count: 10
I know some of the brokers at Crown and at it’s a very good product.
I’ve seen people pay down their OO loans incredibly fast, it’s definitely worth a look if paying down debt is important to you. It’s not just the lower interest rate though, there’s also a component of money management in there which is beneficial for people who require that sort of assistance.anna-kreisParticipant@anna-kreisJoin Date: 2021Post Count: 0
Wow, that sure sounds interesting, pretty sure I haven’t heard of this one before.AjanPeckerParticipant@ajanpeckerJoin Date: 2021Post Count: 0
‘Loan redicer ‘ sounds so epic but basiccaly they offer you a consultant .Colin RiceParticipant@fmsJoin Date: 2011Post Count: 338
‘Loan redicer ‘ sounds so epic but basiccaly they offer you a consultant .
Crown offers a service where they manage your money as well.