Course Hero Logo

Splits are very helpful when used to separate tax

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 38 - 40 out of 74 pages.

Splits are very helpful when used to separate tax-deductible interestpayments (eg. an investment property and costs) from non tax-deductibleinterest payments (eg. an owner-occupied property).When investors areusing their existing house as equity to purchase an investment property, commonlythey will fix that part of the loan used to buy the investment property and allow thehome loan component to be variable. They are usually able to set the fixed loan asPrincipal and Interest although Interest Only may be allowed by some lenders.The split loan is a cautious way a client can borrow for a home or a wise way to borrowfor an investment property. When clients are unsure of the way interest rates maygo it is a way of hedging the risk.Not all loans can be split.Usually loans that are securitised cannot be split as thelender sells off the loan and the mortgage over the security. The lender cannot sell aportion of the mortgage as the buyer of the loan package wants total control over itssecurity.Advantages1. Lenders generally only charge one application fee as it is treated as one loanfacility (however an additional valuation fee is likely to be charged for eachadditional security)2. A fixed rate creates certainty for investors on their monthly repayments oninvestment loans3. Borrowers are protected against interest rate rises on the fixed part of the loan4. Borrowers can benefit from interest rate reductions on the variable portion ofthe loan5. Borrowers may make additional payments or loan reductions on the variablepart of the loan.DisadvantagesBorrowers may not benefit from interest rate fluctuations on the fixed part ofthe loanSome lenders charge set-up fees, account fees and discharge fees on both thefixed rate portion and the variable rate portion
CERTIFICATE IV IN FINANCE AND MORTGAGE BROKING - FNS40821Page39© Copyright 2022 The National Finance InstituteV.010522Borrowers may have to pay an admin fee for early repayment or break fundingfees on the fixed portion should they payout the loan or break the fixed term.Offset AccountsAn Offset Account is an optional feature of some home loans that allows the loan tobe paid off sooner while keeping savings separate.Lenders commonly offer loanswith a mortgage offset account as part of their range of home loan products.EXAMPLE:If the client established a Variable Rate Home Loan of $300,000 and had$20,000 in a linked 100% offset account, they would only be charged intereston $280,000 of the loan amount.By having salary or wages, as well as savings, deposited directly into a linked offsetaccount it allows for additional interest savings.Payments can often be automated and extra and higher repayments can be made atany time yet still retain a redraw facility. It can be used for either owner occupier orinvestment loans and there are very few costs attached to setting it up. Some lendersonly permit a certain amount from the savings account to be offset against the loanbalance and all loan repayments still need to be made on the full loan amount.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 74 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
N/A
Professor
Sonja
Tags
Debt, Mortgage loan, National Finance Institute

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture