Forum Replies Created
Agree. You could get stuck if your banker / broker is not up to speed. The banker / broker will also need to keep on top of getting ING to sign the deed on priority.
Sammmeee – what state are you in?
Brokers have access to the same policies.
I would say it’s less complicated. You deal with one lender rather than two.
Both ways you finance 100% plus costs as two loans. 80% against the new property and 20% plus costs against the exising property.
The only difference is the new bank contacts ING and advises them they are placing a second mortgage on the property – you don’t need to deal with or speak to my rate / ING. They cannot refuse a second mortgage. The banks will organized deeds of priority etc between them.
Advantages;
1. fast (dont need the existing title released)
2. cheap – CBA is a great example. They don’t charge for the deed of priority.
3. Avoids ING break costs
4. one lender – e.g. Don’t have to apply to my rate / ING and another lender
5. only one hit on your credit reporty – not two!Banker
Something a few people don’t consider.
You can go to a major bank (get an experienced lender) and borrow as follows;
80% interest only against the IP
20% plus costs with the major – against your existing property.You can get a 2nd mortgage put on the property you currently have which means the property has two mortgages registerred with the titles office. One to ING; and one to your new bank.
The new bank will top up behind your existing lender to 80%. when the couple of years is up the major bank simply refinances ING and takes the title – back to one mortgage.
I have done this many times for clients with fixed rates that don’t want to pay break costs. The fees are no different than a normal loan therefore don’t be scared it will cost more.
The process is a bit different e.g. Deed of priority is required however an experienced lender should know what to do and how to do it.
Rates for second mortgages with majors should be no different than normal loans.
Banker
hi Andrew,
I know I’m being a little bit of a pratt however it’s very black and white and applies to all major banks.
Terryw wrote:You should probably talk to your accountant, but i would think option 2 to be the easiest – subject to you disclosing the purpose to the bank. make a diary note that you have told the banker this in case something happens in the future.Diary note is a good idea. if the bank offers you a home loan : investment loan; the banker has dressed it up as personal investment. End of storey.
Problem with the major banks is that business purpose loans are outside of retail bankers delegation. If purpose of funds is business neither the banker, retail credit officer, branch lender or mobile lender has relivant authority to write the deal as a home or investment loan. It is the same accross the board as it comes down to issues with APRA and banks requirements to catergorise their balance sheets.
Banks are split into multiple companies. E.g. Nab has a retail bank, business bank, capital markets, corporate etc etc. The all come under the one group known to us as National Australia Bank.
Which bank are you dealing with?
The loan is still for business purposes. Regardless of strucuture.
Therefore if a retail product either you, your banker or your broker is will need to withhold information from the bank to get home loan pricing. It is a pretty minor area of fraud and very common; but still deceptive.
Some non-banks are happy to lend on home loan products for business purposes. Major 4, St George, Suncorp, Bankwest, BOQ and many others absolutly, unconditionally do not allow business loans to be written under retail products.
As mentioned above it can be disguised as personal investmet however if I knew th purpose I would decline it. I would only approve it on a business product.
To avoid minor fraud. Ask the bank to disclose to credit the fact the funds will be used for business. See what happens !
itsandrew wrote:My wife is looking to take out a LOC against our PPOR for running her business. Our PPOR is in joint names. Because of this the bank wants both our signatures on the LOC for her business.However, the sole purpose of the debt will be to run my wifes business:
1) Does it matter for tax purposes that the security for the business LOC is in joint names?
2) Does it matter for tax purposes that I will be a signatory of the loan, ie. does it mean my wife can only claim 50% of the tax benefit if my signature is on the loan?
Terry is 100% correct, if title was in one name avoid guarantees where possible.
In this example refer to options I listed above as the title is in joint names.
The tax benefits of the interest relate to who borrows, not who provides security.
Therefore you’re better to have the line of credit for the business in her name only. You will have to provide a guarantee as you are on title. If you do not provide a guarantee the property can not be used as security.
Answer to your questions;
1. Security is irrelivant. Purpose of funds dictates tax benefits.
2. If you are guarantor you will not be a signatory on the loan or account. You will only sign a guarantee document (you will get a copy of the loan or line of credit but not be requiredto sign it. As you are not a borrower. Your wife will sign her loan contract but not get funds unless you sign the guarantee.Note;
ideally, the line of credit would be in the company or business name however this might put the rate up as it becomes business banking. To avoid business rates you will need to apply for “funds for personal investment”.
None of the major banks are allowed to offer a retail line of credit for business purposes. I’ve seen many bankers fired for doing this and recently some brokers have had accreditations cancelled. It has not been enforced inthe past but is being taken more seriously now (loans must be not unsuitable under new laws). Hence business purpose requires business product.
Saying that. I would take a retail line of credit for personal invesmtent because I like to change my mind. Might buy some share or property. Bugger it- a month later use it for business.
It is the purpose of funds at time of application that matter.
If I was a banker and you said it was business. I would decline a retail line of credit and only offer a business overdraft or loan.
Fine lines. Step to the left it’s cheap. Step to the right it’s not!
Banker
Not sure if I agree Terry.
If two people are on title two people need to agree to borrow against that property in the capacity of either applicant or guarantor.
For example the line of credit could be in one of the following structures;
joint names
her name only with his guarantee
a company name ( if one exisits) with his and her guarantee.Either way, if borrower or guarantor, it will be taken in to consideration for future borrowing.
Note; you can’t secured a debt, loan or line of credit, against a property without all title holders being guarantor or borrower. Otherwise the mortgage document is invalid and the lender does not have access to clear title.
Technically it makes no difference if you are applicant or guarantor it will need to be disclosed when applying for future funding.
Banker
The structure has a significant flaw if sold to your for mortgage reduction. Hence ASIC have a section on their website calling it a scam and the banks approx 5 years ago withdrew their marketing promoting off-set or line of credit for mortgage reduction.
Anyone who remembers the graphs showing a home loan over 30 years without offset and then 8 years with offset would remember the little captions:
"this is on the assumption of net income of $5000 p/m and monthly expenses of $1500 p/m"
What the clients did not realise is that this is no different than increasing your repayments to $3500 p/m (difference between income and expense). The standard repayment on the 30 year loan might be $2000 therefore the real mortgage reduction came from $1500 additional repayments per month. Not Off-Set!
So truth is:
If you have a credit card that starts at NIL at the start of the month. Then pay in full at the end of the month with say $1000 owing. You could say the average balance throughout the months is $500.
With a loan at 6.66% the math is as follows: $500 x 6.66% = $33 savings per annum. Bugger all for all the effort.
So hopefully now you know the real savings is via additional repayments or savings; not flushing day to day banking through the account / using a 55 day int free credit card: – THIS HAS MINIMAL EFFECT AND IS A SALES SCAM !
This is the reason I have said in other posts CBA MISA is not a bad thing (min $500 transaction) and that a 100% offset account should not be your DAY TO DAY bank account – for the exact reasons you have mentioned.
The questions is how much do you have in your ACCT 2 each month?
that figure multiplied by the interest rate of your loan is real interest benefit of offsetting your day to day cash.If your broker has sold this product for mortgage reduction purposes please lodge a complaint to the financial ombudsman so we can knock the dodgy people <ed. moderator> out of the industry.
For more info read the Australian Security and Investment Commissions comments here:
After all the warnings if you are still dumb enough to go with a non bank, regional bank overseas bank to skimp on rate or because you think price is the number 1 issue; more fool you…
It’s not so much about risk – it about not having the funds if everyone redraws. At least not at th same cost of funds.
We have 4 strong lenders in Australia. Even that is debatable when you look at NAB and their profitability on loans written currently versus CBA. Westpac is also struggling due to high cost of funds.
Weve heard these storeys over and over again.
Stray away from the majors – but don’t complain!
I think you are all looking far too much into it:
http://www.ato.gov.au/individuals/pathway.asp?pc=001/002/002/013/003
this link covers almost everything you need to know about deductions regarding rental properties.Let’s not get carried away thinking residential property investment is sophisticated from a tax point of view. The only tax return simple than a person with a couple of investment properties, is a person with a job and no investments. If we looked at accounting like a school system it looks something like this:
- Personal tax is like Accountant Kindergarten
- Investment property trusts are learnt during accounting Prep
- Small family Pty Ltd trading businesses are Accounting High School
- At Accounting UNI your learn about larger public companies
- Grown up accountants should know almost everything.
Lets go back to Kinda. Read the link above. If the answer is not there (ITS NOT) the answer is simple: Take a punt or get a private tax ruling.
Any accountant that advises otherwise is simply him/herself taking a punt. Problem is most accountants are stuck in pre-school.
p.s.
It does say in there you can calculate differently; e.g. apportion expenses to other parties as long as you can justify and confirm with records, I'll find it again and paste later. This would support husband being able to claim if he was paying.
IT's all open to interpretation!Banker
With property; as an example. If you buy In joint names; husband and wife for 200,000 and husband borrows 200,000 could you not also look at it as husband paid 200k for a 50% share. The 200k was still borrowed for investment purposes. There are plenty of examples where husband and wife get financial benefits from each others investments.
I understand your point (Terry) and it all makes sense. If accountants have different views, the ATO can’t give a strait answer / and it falls in to a “grey area” – You have two choices;
1. Ask for a private ruling from the ATO
2. Take a punt on one of the optionsIf I went option 2 I would simply take the punt in my favor. Even the ATO website says if you calculate something different than their instructions simply keep detailed record of how / why you calculated your deductions differently.
Your reason for deducting is:
100% of the loan went to the investment property for which you are on title and $xxx was what it cost you in interest – therefore you claimed it !
As I said in my first post it’s an area where there are mixed views.
If you borrow for investment purposes I think your are pretty safe. If I borrowed in my name to invest in shares or property for my wife – I would claim the interest in my name. You can all get on the phone with the ATO (call ther hotline) and they will confirm you can not claim interest on a loan if you are not an applicant on the contract…just as you can not claim depreciation on a property if you are not on title.
If husband and wife buy a property in joint names; but the loan is 100% in his name; he is incuring the costs for interest – not her. Therefore he claims. Not her.
Why don’t you all jump on the phone and call the ATO then post your responses?
There hotline number is above in my other post. Mix the scenario up a little so we don’t confuse them.P.s.
My scenario was as follows;
if I purchase shares in joint name with my wife; and the loan is in my name only, can she claim half the interest as she owns half the investment.
The lady on the phone put me on hold for 7 minutes and then came back with; no. You are incuring the expense therefore you must claim. Your wife will have to declare Her portion of dividents and future capital growth.
Anyone else want to give it a go?
I’m sure we will get mixed responses.Hi Hans,
You must be the only person in the industry looking for people with NIL experience to work part time as mortgage brokers?
The wider industry has been making massive efforts to professionalise the industry and do away with the ’truck driver today, mortgage broker tomorrow’ image the industry has earned over the last decade. What’s with benefit for the client with the NIL experience approach?
How are your part timers going to code with the minimum volume requirements?
You mentioned you are recruiting for Mortgage House – Is this really the type of broker they’re trying to build their franchise with? Sorry to be a prick but I don’t get it?BankerThey would have to be guarantor. The loan contract would be to the borrower supported with a guarantee; the mortgage doc would have to be signed by all title holders to be accepted by the titles office.
I’d just work out the max you can spend / or are willing to bid. Get the bank to value with that as your estimate and when the Val comes back get confirmation from the bank it acceptable: and let the Val be your limit.
As Richard said, good brokers weed out the chaff. If you buy, then get the val, then fin out the bank won’t accept it, the find out your are the chaff;; you will be in a bit of a pickle…
Also – just called ATO on 13 26 21.
They have said interest can only be claimed if your name is on the loan. In this case husband and wife have purchased th property however husband is being charge interest expense. She cannot claim interest as she has not been charged interest. She does however get 50% of income and capital gains if sold.
Husband can not claim more than 50% of other expenses.
I just read the link;
“Interest on money borrowed by only one of the co-owners which is exclusively used to acquire that person’s interest in the rental property does not need to be divided between all of the co-owners.”
.
And they decline nearly every 95%er… Maybe no post code restrictions however the traditional NAB decline based on 'where not comfortable with the deal" can be used to decide anything.
Devo 76 is part correct but it will depend on your accountant.
It's an area where there are mixed views.
Logic would say that the person(s) on title get the depreciation and the person(s) on the loan get the interest deduction.
Most accountants that I come across work on this basis. Therefore assuming you’re are both 50% owners of the property; you get 50% on the income each, claim 50% of the depreciation and costs each and then you get 100% of the interest deduction. In your circumstances this would be good as you get less income but more interest deduction – this equals more paper loss and better tax benefits.
If the property was brand new and depreciation was high you might want to have more interest on title; if the depreciation is low and the interest is high: – you want less income (sacrifice some depreciation) and get all the interest.
Other accountants will argue that technically you have borrowed 50% of your loan to buy your 50% of the property and the other 50% of your loan to lend to your wife to enable her to buy her 50% of the property. Therefore may claim some of the interest in your wife’s tax return.
I would simply claim first scenario if your accountant is happy with it: –
CBA only do owner occ at 95%. investment is 90%. unless you are premium or private banking.
