Use Half Our Mortgage Redraw to Buy Shares?

blackfrancis75 on 18/10/2016 - 09:33

Seeking as much advice as I can muster on this one:

We have a mortgage on our home. The purchase price was 1.06M, We owe just under 690K. Property has appreciated somewhat, maybe worth 1.2, 1.3.
When we bought this home, I sold an investment property and as a result we have a redraw available on the Mortgage around 100K.

I'm contemplating investing half (50K) that redraw into shares. My approach for the choice of shares to invest in are:
1 ) Low-risk
2 ) Diversified (banking, retail, mining, agriculture, telco/tech)
3) Pays more than 4% dividends annually, fully franked

The benefits I see in this approach are:
1) We're not solely invested in property (if our primary residence can even be called an investment)
2) We'd be getting an effectively higher interest rate because >4% dividends are worth more than the offset the same money would save us on our mortgage

I'd keep half the redraw in the mortgage, at least to start with, in case of 'emergencies'.
So, you people who have more experience with this kind of thing (i.e: everyone), my question is - are there any pitfalls to this idea that I haven't considered? Would we really be better off?

Financial

Comments

      • dtc on 19/10/2016 - 16:14

        This depends on how you define 'the long term'. If you were buying shares in 2005 you may not have made a profit on them until now, because of the GFC, or you may still be a long way behind (eg BHP).

        • Trying2SaveABuck on 19/10/2016 - 21:03

          You could also argue if you brought shares/Property post GFC you would of made a tone of cash?

          All investments other then keeping you money in the bank have risks it just depends what you can stomach see you might of lose if you sold you shares in 2005 but if you kept buying though out the GFC and post GFC you're returns would be huge.

          With that said there is always value in the market assuming you know what your are doing if you purchased CSL in the height of the GFC ie around $12ish and held on to them you would of made 875% profit plus compounding dividends so your looking at around 950%-1000% return in 12 years….

  • KaTst3R on 19/10/2016 - 11:46

    Actually if you compare the risk spectrum of all types of investments, shares are considered the riskiest asset class. There is no such such thing as low risk shares. Even blue chips can get wiped out 10% or more in 1 bad trading session. So best to speak to a financial planner.

  • cameldownunder on 19/10/2016 - 13:13

    Has anyone ever wondered why so many brokerage accounts ads are popping up, suggesting to invest on shares? Because there are hungry sharks out there, eager for your money.
    The whole share market is an elaborate scheme to get the money out of the pocket of people who are not informed.
    To stand any chance against professional investors and private bankers, who have a tonne of information at their disposal, is to follow ONE share and study the company exactly.
    All the rest is playing against the bank, and the bank always wins.

    "2) We'd be getting an effectively higher interest rate because >4% dividends are worth more than the offset the same money would save us on our mortgage"

    Problem is, you pay taxes on dividends ( wither before they are paid out, or after ), Resulting in your return to be in the range of 6%. Currently putting you in the mid-growth share range, which carry also a certain risk.

    Looking at ASX 200, the index has a potential of 10% plus for this year. But it has also a 30% minus potential.

    Me, I have a mortgage, and as long as I have one, that's where I put my money in ( Except for Enelope Batteries )

    • Skramit on 19/10/2016 - 13:33

      Whilst I agree there are "sharks" out there (mind you there are sharks/scammers in every industry), there are also many honest and helpful brokers who charge very small fees with the potential for excellent rewards. The best way to find them is word of mouth ibn my experience.

      So to simply categorise investing in shares as an "eleborate scheme" for brokers to steal from us is ridiculous and unhelpful.

      Every individual has to evaluate 'risk vs reward vs time' for themselves. There are no right or wrong answers whether the share market or an investment property or bonds or term deposits are the right investment - everyone has to make this call from themselves.

      But I will say this….if you're over 30, working full time and are not considering all investment options, you are doing yourself out of potential wealth building income. Squirrelling money away is certainly safe but it's 'risky' in that you're not maximising your potential earnings even with very conservative risk.

      • cameldownunder on 19/10/2016 - 13:56

        @Skramit You do sound like a Broker, Financial advisor. Living off the people who "want" to invest.
        Check this out "Commsec New Clients Receive $600 Free Brokerage (Your First 10 Equity Trades Will Be Free)"
        https://www.ozbargain.com.au/node/271288. Talking about the Devil.

        "So to simply categorise investing in shares as an "eleborate scheme" for brokers to steal from us is ridiculous and unhelpful."
        No it's not. But dismissing it like you do is dangerously negligent.

        In the share market, one has to sell for the other tu buy. And information is the key.
        What sources of information does the mere mortal have? Yahoo finance end of day results?
        Do you have a clue of what information 'Professional brokers" have? They have the full outstanding order book. How much people are willing to pay for how many shares. There's a massive unbalance in knowledge.
        So if a professional buys. it's because the chances are stacked on his favour. Same if he sells. Or in short, you loose.

        • Skramit on 19/10/2016 - 14:11

          I'm glad I sound like a broker, but I'm not.

          I didn't dismiss your comments at all, I acknowledge up front there are indeed sharks after your fees. The example of CommSec is valid.

          But also remember the financial advise sector is regulated and has rules and those that break them can and will be prosecuted.

          Do you have a clue of what information 'Professional brokers" have?

          Yes I do actually. When you sign up with a broker, you almost always get access to their global knowledge base of research documents which are extremely thorough and frequently updated. FOR FREE. Any of the major, global brokers will be publishing dozens of documents per week with their analysis and predictions. Customer can access all of it for free. Most brokers only charge per transaction, and this transaction fee has to pay for the thousands of hours of research and analysis going on in the background.

          How much people are willing to pay for how many shares.

          That's not how it works….

          So if a professional buys. it's because the chances are stacked on his favour. Same if he sells. Or in short, you loose.

          If you're not doing a similar thing in the sharemarket to look after and maintain your investments, then you're a fool :) Nobody said it's easy, but with good advice its very manageable and low risk in my opinion.

        • cameldownunder on 19/10/2016 - 14:32

          @Skramit: Sure it is, they have an exact view of the outstanding orders.

        • cameldownunder on 19/10/2016 - 14:33

          @Skramit: Yes I do actually. When you sign up with a broker, you almost always get access to their global knowledge base of research documents which are extremely thorough and frequently updated. FOR FREE.
          Ok, didnt know.

  • Steptoe on 19/10/2016 - 13:50
    +1

    A quick google gave this link:

    http://www.adriansca.com.au/announcements/mixedloans

    It might help you with loan structure.

  • Sensiekatie on 19/10/2016 - 16:13
    +1

    No no no - not yet. Stay cashed up for now. The great opportunities are on their way when everyone else is bailing out. We are about to go down, down and down for a long cycle. That's when the greatest opportunities are aplenty.

    Stay patient and learn more about what you are thinking of doing. Even trade theoretically. Also more opportunities away from the big boys - if you read the right information and not just a few major stocks, you can go way better than 4%.

    The wise advice says read widely and do your homework before devising your strategy.

    The award winning fund managers are using quantitative methods now - ie number crunching statistics and history and combining the information into their systems. There are a few good ones out there.

    • OzFrugie on 19/10/2016 - 20:37

      What makes you think ASX is about to go down and down for a long cycle..?

  • darkchoc on 19/10/2016 - 18:39

    My happy to share our current strategy and wouldn't mind some comments/thoughts

    Own my own place which we bought 3 years ago for about $550k in Melbourne with 80% loan. Worth $800k+ now. (Win!!)

    Remortgaged my home earlier this year and used the equity for a deposit on an investment property in frankston and to pay for stamp duty and costs. That amount is a separate loan secured to my home that is interest only. Rest is financed with an investment mortgage. Effectively the investment property is 100% geared and interest is fully tax deductible. Effectively I have 3 mortgages.

    Rent covers the interest completely on frankston investment mortgage and refinanced portion of home loan.

    All our earnings go into the offset mortgage for my owner occupied property (original loan).

    All my employer superannuation contributions are going into 100% equities. It's a long term investment horizon with long term position on equities. I have no idea how to pick shares, so I picked 50% global share and 50% Australian shares from the premade options with my employer super. Have death and disability and salary continuance insurance at the highest level they would give (about 7 x salary).

    I'm quite happy with it. But it is scary seeing the level of debt I have!

    • OzFrugie on 19/10/2016 - 20:37

      Looks like you are doing well there @Newplace!

      Just wondering when you borrow 100% LVR for the investment mortgage, do you have to pay LMI?
      If so, is the LMI and the interest incurred by it (if it is part of the loan) tax deductible?

      • darkchoc on 19/10/2016 - 21:15
        +1

        No LMI. 80% loan. But the 20℅ deposit was financed by taking a second mortgage on my primary place of residence (drawing on equity), which was earmarked for the purpose of investment. Therefore, both mortgages are deductible for tax.

        My original mortgage for my primary place of residence is not deductible.

        It's a bit like the share example scenario C I gave, where additional borrowing is used to fund an investment.

      • samprofs on 20/10/2016 - 20:21

        This is done through cross-collatoralisation. Banks prefer to set it up this way. It is a pain if you top up or plan to sell the owner-occupier. This essentially forces both properties to be with one bank

        You can also do:

        OWNER-OCCUPIER LOAN 1

        Split Loan 2- For Investment property deposit (20%) - This portion is tax deductible and it is against the owner-occupier. However, the purpose is investment.

        New Loan Investment at 80% - This portion is also tax deductible

        This structure avoids the need to cross-collateralise and you can still deduct 100% off the debt as it is used for residential investment purposes .

    • bargainbargain on 19/10/2016 - 23:16

      Highly suggest with your super go for diversified allocation. Perhaps given your appetite for risk - consider higher allocation to equities.

      • darkchoc on 20/10/2016 - 07:46

        Thank you. Diversified allocation to me means e.g. asx 200 index. But What exactly do you mean when you say diversified allocation?

        • bargainbargain on 23/10/2016 - 18:51
          +1

          Diversified allocation to me means allocation to investments with different risk and return profile plus investments in a variety of underlying exposure like fixed income, australian shares, international shares, property, infrastructure.

    • kuco on 21/10/2016 - 14:30

      I have the same strategy and mortgage structure, the 2 differences are that I live in Perth (so no luck with capital gains, but rent more than covers the interest) and that I believe I know how to pick shares (see Sensiekatie's post above). Some super funds let you buy ASX300 shares with your super without having a SMSF…

      So far it is working very well for me

  • virhlpool on 19/10/2016 - 22:12
    +1

    With a bleak possibility of earning higher return (if at all), I don't think it's worth such a pain of going through the whole process of drawing money from loan offset and investing in shares, managing the portfolio and reporting on the the numbers in tax returns - all this for say 0.5% potential extra gain or may be not even that.

  • [Deactivated] on 19/10/2016 - 23:42
    +2

    Are you looking for Gigantic Returns? If so, what you're proposing may not be the way, but it's better than speculating on the stock market on a margin loan, which is akin to Digging for Fire.

    Interest rates are low at the moment. It's unlikely they'll Debaser the basis points that much further. But perversely, in this low growth environment, asset prices are pretty inflated. The low interest rates may be the cause.

    I myself am preparing for a Wave of Mutilation, should a declining property market cause bank profits to fall and the wider economy to stagnate. If we have a contraction or recession, people lose their jobs and mortgagees start defaulting it'll be a case of 'Here Comes Your Man' and you'll have wished that that Monkey had Gone to Heaven.

    At any rate, it's good to diversify your investments, and ETFs and Indexes are ideal. Australia is still very much leveraged to global demand for resources, which should remain. But China's economy seems rife with speculation. If it all falls over for a bit you'll perhaps want to go live in Los Angeles.

    • darkchoc on 20/10/2016 - 07:50

      It's a bit like the strategy that someone mentioned to me… Buy when it's doom and gloom in the news (e.g. market crashed), sell when market is popping champagne.

      However, I believe equities were a long term real investment will outpace inflation. However, need to nore that proves are inflated at the moment due to the reasons you say.

    • blackfrancis75 on 21/10/2016 - 09:37

      good job

      • [Deactivated] on 21/10/2016 - 09:55

        You've inspired me to start a soft-LOUD-soft-LOUD financial advisory firm.

      • kiitos on 29/10/2016 - 11:30

        I didn't understand why the Pixie refs were there till I saw OP's reply!

  • tarken on 20/10/2016 - 07:15
    +1

    What is your stock picking strategy? What is your entry and exit criteria for shares? If you invest in a bull market, doesn't matter what you pick, most shares will go up.. Some more than others. In a bear market best to stay in the sidelines until there is a trend change unless you feel like catching falling knives. Capital preservation and risk mitigation should be your primary focus before profits. I have seen huge profits vanish quickly when the trend changes and people don't know when to get out.

  • whatthecrappin on 20/10/2016 - 08:34

    Probably already covered, but I did something similar.
    The important thing is though - split the redraw amount off into a seperate loan
    eg - 300K loan with 100K accessible
    split it into a 100K loan (use this for shares)
    and 200k loan (use this for residental purposes)

    This way the shares loan is actually at a home loan rate! I didnt need to get approval or anything as the loan amount is still the same :)

    Its split into a seperate loan as it makes claiming the interest MUCH easier. Otherwise you're doing weird things like a percentage of the main loan is investment so you claim that investment. What happens then though is as you start paying off the loan, you're effectively paying a percentage of the investment loan as well (which you DONT want to do) you want 100% of the payments where you're in front to go to the residental loan

    • Skramit on 20/10/2016 - 09:27

      Is your new investment portion converted to interest only or still P+I?

      • whatthecrappin on 20/10/2016 - 10:54

        Interest only :)

        I want to maximise the amount of funds going into the residential loan

  • Tech and cars on 20/10/2016 - 09:06
    +1

    Learning so much from just reading these comments.. Thanks everyone.

  • Skramit on 20/10/2016 - 10:10
    +1

    Here's a simple example:

    Interest rate: 4%
    Interest only investment loan: $50,000
    Interest Payable Annual: $2000

    Say you only buy Telstra shares $50000
    Gross yield 2016: 8.52%
    Dividend Income: $4260
    Gross Profit: $2260
    Net Profit (less tax 37%): $1423 (Profit woot!)

    Tax deduction $2000 (Bonus profits woot via bigger tax return)

    If you put these profits (now cash) into your home loan each time you receive dividends reducing interest payable over the life of your loan by a few thousand per year means paying off the loan quicker = Bonus profit woot over 30 year loan! And remember we havent touched the 100k you already have in the redraw account so thats still there.

    Then on top of that is capital growth of your shares which is impossible to measure with any accuracy over the short term of 1 year. but capital growth is an added bonus really. Say Telstra drops 5% in 2017, it doesnt really affect your overall strategy if you are playing the long game. Capital losses over the short term are fine as long as those companies continue to pay decent yields.

    In terms of risk - say if there is another GFC, assuming you don't need to retire any time soon you can ride through it and come out the other side no problem because you don't need covert the shares to cash. Again - as long as the companies continues to pay dividends :) Remember this is a long term wealth generating strategy, not a get rich quick scheme. You have to approach this as a 10 year deal minimum.

    So whilst a few replies in this thread talk about "only 3% dividends" etc etc, they are all missing the bigger picture and the flow on effects of a strategy such as this. The goal is of course to pay off your home loan quicker right? And by making small profits through the share market, profits you wouldn't ordinarily have, it will add up quickly over the life of a home loan.

    The other thing not mentioned with this strategy, is after 5 years you have paid off another large chunk of your house, and your house has hopefully appreciated, you can borrow more and buy more shares in another small chunk and build your wealth that way whilst keeping a similar level of overall debt. So in 5 years maybe you have a 100k investment loan. And in 10 years $150k…. etc. You maintain a similar level of debt as you pay down your house and increase your investment loan.

    • ukulele on 24/10/2016 - 10:00

      I'd like to reiterate you need to be rock solid with your psychology though. This is often overlooked by a lot of people. A recent example: TLS traded at 5.8 in July 16, the previous year it gave out 15.5c x 2 dividends which implies a trailing yield 5.3% (not including franking). It is now at $5.04 so your 50k capital position is now $43,448 not even including brokerage. In that time you have earned $1,336 in dividends. Another takeaway from this is of course, you must diversify.

      • Skramit on 24/10/2016 - 10:04

        Agreed. I only used a single company for example calculation purposes.

        But don't forget the massive tax deduction is effectively an investment return so you have to count that in your psychology and overall return.

  • drfuzzy on 20/10/2016 - 10:53

    I do this.

    Don't do it without an accountant.

    If you inadvertently mix personal and investment loans or monies (it is easy to do), you risk having the ATO unwind your deductible interest and hit you with interest and penalties.

  • Chigo on 20/10/2016 - 12:39
    -1

    What a stupid idea. You owe 690K. Pay that shit off

    • Duram on 20/10/2016 - 17:02

      lol at the down votes.

      • Devils Advocate on 20/10/2016 - 18:09

        Lol at up vote. Financial planner here, OP has stumbled upon a great strategy when used correctly.

        • Duram on 20/10/2016 - 20:06
          -1

          Let me translate this for you, Financial Planner here I make money while people stay in debt and continue to pay interest / buy into my backyard services. Eliminating debt would eliminate my job thank you and please continue to load up on it!

        • Devils Advocate on 20/10/2016 - 21:48
          +1

          @Duram: Educate yourself, please. Debt isn't necessarily a bad thing. Personally I couldn't care less whether people have debt or not, we don't make money off people having debt. We make money by using strategies that make other people money, and some of those involve debt.

          You're more than welcome to keep doing your own thing, but you'll never be as well off as you could have been if you researched strategies like this one and recognised the advantages. Just paying down your loan is a good low-risk option but if you have a long term horizon and are comfortable with risk there are better options.

  • niknah on 20/10/2016 - 13:33
    +1

    You mentioned that you're not seeking capital gains. You can buy the company's notes instead of the shares. Their value won't grow, but they pay a % amount that's linked with the normal interest rate, unless something bad happens. But it's always ahead of normal share dividends, they will usually stop paying normal share dividends before they stop paying notes.

    It's mostly banks that issue these notes…
    http://www.asx.com.au/asx/markets/interestRateSecurityPrices…

  • [Deactivated] on 20/10/2016 - 15:17

    Can you afford to lose the money you withdraw? A move like that isn't for everyone.

    If your income is coming entirely from your employment, you have no control over job security.
    Now you're possibly extending your loan to buy shares which are also not under your control.

    Everything has risks but not everyone is affected by those risks in the same way.

  • worldwidehappiness on 20/10/2016 - 18:50
    -1

    "1 ) Low-risk"

    There's not much low risk. Many "blue chip" companies that pay good dividends end up falling in value anyway. And they are all vulnerable to global factors. Better to get on a few undervalued "riskier" growth shares, but you have to do extra research for that. Some will fail, but others will hit the moon. Beware that when "experts" point to growth in ASX 200, for example, they forget to tell you that many stocks exit the ASX 200 due to poor performance or even bankruptcy, and new companies replace them.

    • -.- on 20/10/2016 - 20:00
      +1

      Try reducing your downside exposure by buying put options. Blue-chip shares have reasonably liquid option markets (you'll need to open up a separate option trading account). The strategy is called a protective put, and it'll give you the right (but not obligation) to sell X amount of shares (in multiples of 100) at a pre-determined exercise price.

      Example:

      Buy CBA 100 shares today (20/10/2016) @ $75 for total $7,500
      Buy 1 put option expiring 1 year later for $1x100=$100 (premium paid) with exercise price of $70.

      1 year later, CBA shares trade at $65.
      Loss (excluding dividends) without hedging: (65-75)x100=-$1,000.
      Loss (excluding dividends) with hedging: (70-75)x100-100=-$600.

      If, however CBA shares trade at $85, then:

      Profit (excluding dividends) without hedging: (85-75)100=$1,000.
      Profit (excluding dividends) with hedging: (85-75)      100-100=$900

      The maximum you lose from holding the option is the premium that you paid ($100).

      With that kind of a strategy, a lot of market risk can be nullified.

      More info here: http://www.asx.com.au/documents/resources/UnderstandingOptio…

  • CheapskateQueen on 20/10/2016 - 20:22
    +1

    Haven't read all responses but to be clear:

    Whether interest on a loan is deductible depends on what you use the money for.

    If you took a $100k loan for your private home, the interest on that is not deductible. If you repaid $10k of that loan, then redrew that $10k to buy shares, the interest on that $10k portion is definitely deductible.

    Your problem is working out your interest deduction your entitled to. For this reason you should ask the bank to create a separate split/account for the redrawn portion used to buy shares (eg the $10k)

    When you mix a loan for private and investment purposes, each repayment of principal is also split between them. You can't say "this $1000 repayment goes to my home loan portion". It gets apportioned based on the loan mixed purpose percentage. Eg $900 goes to home loan $100 to share loan. Then you have to recalculate the interest on the new amount. Doing this every time you make a repayment will be a nightmare. Plus you wouldn't want to repay v the share loan anyway. You'd want the full $1000 going to your home loan m

    But if you get the bank to create a separate account for the $10k you can treat it as 2 separate loans. Then you direct your repayments to your home loan account.

    I've split my mortgage into 5 separate accounts, each with their own offset. This way i can control the purpose of each smaller loan split easily

    • Skramit on 21/10/2016 - 08:42

      How easy did you find it to split your loan with your bank?

      • CheapskateQueen on 21/10/2016 - 09:12
        +1

        I split mine when i refinanced to loans.com.au. it's an available option for most banks.

        It should be relatively simple although they might charge you a $100-200 fee. Which I'd say is worth it.

        If they say they can't split it(very unlikely) say "fine. I want to reduce my current loan by $x amount (the amount that you've repaid/want to redraw for investment purpose) and apply for a new loan for $x amount". I'd really doubt they'd make you go through that process.

    • naritas on 21/10/2016 - 19:45

      Speaking as credit advisers, anyone who is looking to do more than a couple of splits is probably best factoring that into their finance requirements upfront. There's a definite trend with banks to charge a premium for their products that provide this functionality via way of an annual fee, split fees or increased rate vis a vis basic loans (which are usually the cheapest) don't come with such bells and whistles as standard. Naturally, if you're thinking of going to a major bank on one of their pro packs, this kind of functionally is fairly standard, but as most Ozbargainers know, the majors aren't really price competitors.

      In our experience there are a handful of lenders who have large bases of financial planners that refer them business that have built up a good niche when it comes to functionality that suits share investors at a reasonable price. To name but a couple, lenders like AMP and Macquarie offer some really sophisticated functionality on this front, and have products that were designed to cater for people with such needs.

      Hope this helps.

  • samprofs on 20/10/2016 - 20:27

    You might want to create a extra split for the 'share investing'. It will simplify things for your accountant.

    Generally with most bank 'packages' you can create extra splits at no extra cost. Some up to 10.

    Hope that helps.

  • [Deactivated] on 21/10/2016 - 08:50

    Use the redraw to open a margin loan and claim the interest on both of them. Use the margin loan to buy an ETF such as VHY and then put the dividends into an offset account. When you have built further equity you could repeat this process. The more dividends that go into the offset the less non-deductible interest you pay.

  • blackfrancis75 on 12/12/2016 - 15:21

    Just to circle back: it seems as though CommBank (at least) don't lend you money against your property equity to invest in the stock market - they will only give you a Margin Loan against the equity in shares that you have. Even then they only do it for investments in certain companies (there are 200 or so, apparently). For Telstra shares, for example, they will lend you 70% of the value of the shares you want to buy as a Margin Loan. You want $10,000 TLS, so you buy $3000 and they lend you the other $7000.
    The other thing is, the margin loan interest is 6.63% (as compared with sub-%4.0 for mortgages) - so you have to be quite certain of the tax implications if it's going to be worthwhile for you.

    • Skramit on 15/01/2017 - 10:36

      I find that hard to believe. Did you actually speak to commsec about a line of credit to buy shares rather than a margin loan? There's a big difference. There might have been so,e confusion in the conversation if you did. Basically you want an interest only investment loan the same as an investment property loan with an offset account but you buy shares instead. I suspect you either didn't ask for the right product or the banker didn't understand or tried to push a margin loan on you.

      An interest only investment loan to buy shares or property is exactly the same type of loan and a very basic product they should be offering against the equity in your home.

      • blackfrancis75 on 15/01/2017 - 11:22

        I asked them directly whether they offer the facility to "split" a mortgage for the purpose of investing in shares, or offer a loan at Mortgage rates secured by your equity for the purpose of investing in shares. They were quite definitive that no such product existed - but as you say, maybe I just don't know the secret handshake

        • Skramit on 15/01/2017 - 11:27

          I reckon the person you spoke to didn't understand what you wanted. This is nothing more than an investment property interest only loan with an offset.

          They would loan this 100 times a day to IP investors.

          I had a similar confusing convo with my major bank. As soon as you mention shares they start thinking margin loans. But what you want is far simpler and really a standard loan. Speak to somebody else if you want to stay with commbank or talk to another bank.

        • blackfrancis75 on 15/01/2017 - 21:43

          @Skramit:

          I appreciate what you're saying, but how is it an IP loan with no investment property? The only collateral is the house I live in; it's not classified as an investment. I think as soon as you mention shares they start thinking 'risk' and therefore higher rates… Should I try to hide the fact that the purpose of my loan is to buy shares?

        • Skramit on 15/01/2017 - 21:50

          @blackfrancis75:

          It's not an "IP loan" but the loan facility would be identical to somebody getting an IP loan if you get what I mean haha. It is a bit confusing, especially for muppets at the banks because they would have 10 customers a day asking for IP loans but maybe only 1 a week asking to use the funds for shares instead.

          Most banks will make you fill out a "statement of intention" for the loan, and you simply write on there "Shares" not "Investment Property".

          Will the rate be higher? Probably. Maybe .5%? Depends how risky they think you are :P

        • naritas on 15/01/2017 - 22:47
          +1

          @Skramit:
          Actually you might both be right.
          Speaking as credit advisers we can confirm:
          a) That many of the brand name banks will lend for share investment. Most will do it an investment property mortgage interest rate, some will do at an owner occupier interest rate when secured against o/o collateral HOWEVER
          b) It will depend on the proposed LVR (i.e. the existing mortgage + new loan to buy shares as a percentage of certified value of property). If under 80-85%LVR such loans are fairly readily available. Above this point the lender may seek to also collateralise against the shares by way of a margin loan.

          Hope this helps.

  • Oz80085 on 14/01/2017 - 18:10

    I think this has been mentioned by others but a 4% saving (offset) is better than 4% income because you have to pay tax on income.

    Your return from the shares would need to be more than 6.35% to justify it. (4% interest rate / (1 - 0.37) - assuming a 4% interest rate and 37% marginal tax rate.

    • OzFrugie on 15/01/2017 - 09:19

      6.55%.. remember 2pct medicare levy so 37 plus 2

    • Skramit on 15/01/2017 - 10:40
      +1

      Not quite. You're forgetting the tax deduction (and subsequent refund at tax time) from interest paid on the investment loan which is fairly significant.

    • blackfrancis75 on 16/01/2017 - 11:45

      I think you're also disregarding the Franking tax-benefits

      • Oz80085 on 17/01/2017 - 15:48

        Ah yeah. Forgot about franking. In any case, the point was that income of $x or a saving of $x is not the same.

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