Loan Reducer is a new, unique product that has been developed with one objective – to assist borrowers in realising the great Australian dream of home ownership. The Adviser sits down with founder and executive director Mark Ashenden to find out exactly how it works
What is Loan Reducer, and how does it work?
Loan Reducer is a disruptive innovation that challenges the mortgage and financial planning industries by providing consumers with a powerful negotiation tool.
For qualified borrowers with both a home loan and an investment loan, the ability to increase net worth by repaying debt is a sound tool to accumulate wealth.
Loan Reducer is designed to allow a home owner to repay their loan sooner by a discounted interest rate and by applying this saving to accelerate repayment on home loan debt.
The basic concept of Loan Reducer is to provide a lower home loan rate by leveraging the investment interest rate against the lender’s desired total return on funds.
The uniqueness of the Loan Reducer software lies in the algorithms that perform all of the calculations for the lender, delivering the exact interest rates for both loans to match the lender’s rate hurdle, the requisite detail for loan documentation, and the tool for ongoing interest rate management.
How does it benefit borrowers?
Loan Reducer allows a qualified borrower to receive a discount on their home loan rate, which can be as low as 2.50 per cent, and a competitive investment rate in line with the major banks’ standard variable rate at a maximum of 5.50 per cent. A borrower can potentially save thousands of dollars in interest and achieve home ownership years sooner.
How does it benefit brokers?
The unique product bundle of the home loan and the investment loan increases the overall size of loan/deal to a customer, so a broker has a reduced cost of loan acquisition – two loans for the energy cost of one.
For the customer, a broker can deliver a unique bundled loan that delivers a compelling interest rate on the home loan and a competitive rate on the investment loan.
Are there any special conditions that come with using Loan Reducer?
Yes. Loan Reducer has strict terms and conditions that govern the product and all distribution is under licence from Loan Reducer with accredited lenders and brokers.
Which companies can offer the product?
At present we have two distribution partners. We are actively building our distribution capability by the addition of select lenders to achieve a controlled but comprehensive distribution reach across the domestic market. I expect that we will be in a position to announce a number of additional distributors in the coming months.
Do brokers need to become accredited to offer Loan Reducer?
Yes. Each of our distribution partners – lenders, brokers and financial planners – need to complete a training and accreditation program.
When we first broke the news of Loan Reducer on The Adviser’s website, some of our readers commented on the article saying it is a tax avoidance scheme. Is that fair?
Totally incorrect. The system, design and method of Loan Reducer is supported by a product ruling from the Australian Taxation Office (PR 2015/2). This public ruling was the culmination of years of work in setting the rules, terms and conditions of Loan Reducer and was built under advice from accounting, legal, taxation, IP, financial product and banking experts.
Will products like Loan Reducer become more mainstream? Will other providers start offering similar products?
I would expect that demand for the product will see supply increase, and I may be biased, but this is a tremendous product for suitable borrowers and I would expect that demand will be strong.
Other providers may seek to offer imitations, but we trust the ATO ruling, patents and confidentiality agreements executed will provide suitable protection for both the end consumer and Loan Reducer.
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