Loan Reducer: Delivering home loan rates starting at 2.25%p.a. (CR n/a)

If you have a family Home Loan AND an Investment Loan, you can now bundle them together and take advantage of the Loan Reducer system. We can show you how to achieve rates on your family Home Loan as low as the RBA cash rate + 0.50%p.a..


Australian Loan Reducer

With Loan Reducer the home loan discount is based on your broader portfolio and for eligible borrowers you may be able to save up to 3%p.a. on your existing debt.

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What is Loan Reducer?

A system specifically designed to achieve homeownership sooner by providing the borrower with the maximum discount (as much as 3% off the SVR) on a borrower’s Home Loan when they have a linked Investment Loan.

How does Loan Reducer Work?

The system operates with a floor rate on the owner occupied loan and a ceiling rate on the investment loan.

  • The floor rate is the lowest rate that can be applied to the owner occupied loan interest rate and is based upon the RBA cash rate plus 0.50%
  • The ceiling rate is the highest rate that can be applied to the investment loan interest rate and is capped to the RBA cash rate plus 3.50%

Does this mean the home loan rate will be 2.25% and the investment loan 5.25%?*

  • That is the best case scenario but it will vary between the floor and ceiling rates subject to the individual borrower’s home loan and investment loan balances.
  • Consequently, if the RBA lifts or lowers rates this will automatically trigger a review, the interest rates for both loans will then be adjusted

*NB: These quoted rates above are based on an RBA rate of 1.75% as at 29 June 2016.

Is this system only for property investment?

  • The investment loan can be used for other income producing assets (such as shares).
  • This is in accordance with the ATO Product Ruling (PR 2015/2).
  • The investment can be owned either directly or indirectly via an entity associated to the home borrower and there can be more than one investment and more than one loan.

Some other things to know…

  • You can only have principal & interest (P&I) repayments for the Home loan.
  • The investment loan can be interest only (I/O) or P&I.
  • Refinancing and/or Construction are acceptable. The rates kick in on completion with construction.
  • Overseas buyers can use it, but only if they are Australian Residents for Tax purposes (i.e. this product is not for non-residents).
  • Fixed Rates can be used i.e. you can split the loan and fix a proportion of the debt, however, this fixed proportion will be excluded from Loan Reducer.

When will the interest rates be change or reviewed?

  • When the lender adjusts their interest rate for variable loans. This could be due to the RBA lifting or lowering rates.
  • In the event either the home loan or investment loan is substantially reduced.
  • On full repayment or refinance of either loan.
  • At the mandatory review period of two years.

Are there any lender restrictions for this product, including LMI?

  • The loan is generally approved based upon standard lending criteria and, where applicable, LMI requirements of the Licensed Lender.
  • The only restrictions are those in place by the ATO Product Ruling (2015/2).

Could this be seen as a tax avoidance scheme and what about tax deductions?

This system is licenced and protected under the ATO Product Ruling (PR 2015/2) therefore borrowers can obtain normal tax deductions as with any other investment lending.

Who is considered the target market for this system?

  • Borrowers committed to repaying their home loan sooner who also have an investment loan for:
    • Residential investment property
    • Commercial investment property
    • A share portfolio or other income producing assets
  • Borrowers who intend to purchase an income producing asset with an investment loan (such as an investment property).

How will a borrower benefit from Loan Reducer?

By having a discounted home loan rate of up to 3% below the banks SVR allows the borrower to increase their principal repayments to pay off their home loan sooner whilst maximising their tax benefits on the linked investment loan.

Is there a special application process for this system?

  • The standard application forms and process from each Licensed Lender.
  • In addition to this, the borrower will need to sign a “side letter” prepared by Gadens included with the standard loan acceptance documentation. This letter outlines the conditions that need to exist for the borrower to continue to get the discount available for their home loan.

How do I get started with a finance approval for Loan Reducer with Naritas?

The team at Naritas are experts in delivering timely guidance & finance approvals.  We have over 100 lenders on our panel & a high quality team of dedicated advisers to steer you efficiently through the approval process.

To make an enquiry online with our team, click here. Alternatively please feel free to phone us on 1300 558 887 during business hours.


Disclaimer: Terms and conditions apply. All loans subject to suitability and available to Australian tax residents only. Fees and charges apply. Taxation ruling is ATO PR 2015/2. This is not advice. You must obtain your own independent financial & tax advice.