Bank offer
- $180K new lending at 10.5% over a 5 year loan term
- Yearly interest cost is $33,275
- Minimum monthly repayment $5,065

Broker offer 
- Adam @ The Lime Group
- $150K top up to home lending at 5.75%
- $30K at 10.5% over 5 yr loan term
- Year interest cost $26,150
- Minimum monthly repayment $2,560
Annual interest savings of $7,125
Also over $2,500 Lower Monthly Payments

‘Adam Thompson adam@limegroup.co.nz – Mortgage Broker at Lime Group Cambridge’

2) Do You Own A Commercial Property?

I’m currently looking at rearranging my commercial property lending, which is at 6.75% through a major bank.  I’m talking to another lender at the moment, and it seems that I will be able to borrow at a floating rate of 4.99%!!  Normally commercial interest rates are a bit above residential, but through the right lender it seems that commercial borrowers might be able to save close to 2%.

For a reasonable commercial property with $1 million of debt, this close to 2% saving, could save $20,000 per year or create $400 extra cash flow per week!

At this stage I’m just going through the process, and making sure there are no hidden catches.  There are fees for this loan, but they are about 1/3rd of the annual saving and also a one off, compared to savings over a 5 year period.  I understand the lenders can do interest only periods and seem quite flexible!  The lender appears to prefer reasonable size debt of $1 million upwards, but can work with smaller debts of $500,000 or more.  If you have a commercial loan of under $500,000, there would still be no harm in enquiring if it all goes well for me.

If you would like me to keep you updated about my progress, send me (ross@coombesmith.co.nz) a quick email with the heading commercial property, and I’ll keep you informed.

3) Maximising Tax Claims

Any loan for a business or rental property is tax deductible.  So if you had a $100,000 rental property loan at 6% interest, the interest cost is $6,000 per year, but as you would gain a tax deduction the real cost is only $4,000 if you are in the 33% tax bracket.

On the other hand, any loan for a personal house is NOT tax deductible, and at best you may be getting a small percentage claim as a home office.  So if you had a $100,000 loan on your personal house at 6% interest, the final cost is $6,000 per year, as there is no tax deduction.

Therefore if makes sense to move as much debt to the tax deductible side as possible, as this would save you $2,000 per annum using the $100,000 loan figures above.  Moving debt from personal to rental/business needs to be done correctly to make the tax deduction is legal, but it is a relatively straight forward process.

The first step is to establish if your business or rental owes you money.  In your financial statements, if the balance sheet shows that the business/rental owes the shareholders current account (under current liabilities) $50,000 or more, it would be worth considering this.  

Then talk to your bank or mortgage broker and check if there are any large break fees, or costs if you were to rearrange the mortgages.

Lastly, talk to me.  It is important that the refinancing is done correctly, so we can review this process and make sure it is done legally!