Investor Advantage - Case Study
David and Joanne are self employed and have the following assets and liabilities:
|
Current Assets
|
| Asset |
Value |
Loan Amount |
| Home |
$850,000 |
$200,000 |
| Investment Property |
$350,000 |
$350,000 |
| Business Loan |
|
$200,000 (cash flow loan) |
| Shares |
$200,000 |
$100,000 (margin loan) |
|
Current Liabilities
|
| Loan Type |
Amount |
Interest Rate |
Monthly Repayment |
Remaining Term |
Home & Investment loan (P&I)
(Mixed loan) |
$550,000 |
9.33% |
$5,687 |
180 months |
| Business Loan (I&O) |
$200,000 |
12.50% |
$2,083 |
N/A (I&O) |
| Margin Loan |
$100,000 |
9.60% |
$800 |
N/A (I&O) |
| Total |
$850,000 |
|
$8,570 |
|
David and Joanne's objective is to repay their home loan as quickly as possible and to add to their investment portfolio. Unfortunately their current structure, which combines their home and investment property loans, simply does not help them to achieve their objectives because:
* Their accountant has to manually apportion the amount of deductible interest attributable to the investment portion of the loan (costs involved).
* Being a principal and interest loan, David and Joanne are paying down their investment loan and as a result the amount of deductible interest is reducing each tax year.
* If David and Joanne receive an unexpected windfall or bonus, they are not able to apply it to reduce only the non-deductible home loan portion of their mortgage. Where borrowings are "mixed" the ATO requires that any additional repayments be apportioned between home and investment debt
If they do nothing more than refinance all of these loans into Investor Advantage @ 8.90% p.a. and continue to pay $8,570 per month (their current total commitment) into the Investor Advantage facility they will:
* reduce the remaining term of their home loan to 69 months instead of 180 months as is the present case.
* have an interest saving of $318,625 because of the reduced loan term.
* increase the amount of deductible interest on their interest only property investment loan to $31,150 p.a. and this will not reduce until year 10 of the loan term (when it converts to P&I).
In addition they have the capitalising Line of Credit accounts as a buffer should they need to meet any shortfall in costs on their investment.
|
Investor Advantage Structure
|
| Loan Type |
Amount |
Interest Rate |
Monthly Repayment |
Remaining Term |
| Home Loan (I/O) |
$200,000 |
8.90% |
$3,749 |
69 months |
| Investment Loan (I/O) |
$350,000 |
8.90% |
$2,596 |
10 Yrs IO
15 Yrs P&I |
| Business Loan (I&O) |
$200,000 |
8.90% |
$1,483 |
10 Yrs IO
15 Yrs P&Iv |
| Share Loan |
$100,000 |
8.90% |
$742 |
10 Yrs IO
15 Yrs P&I |
| Total |
$850,000 |
8.90% |
$8,570 |
|
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|
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