Hey guys
This is the situation.. When my girlfriend’s mum bought her townhouse in the late 90’s the bank needed a guarantor in order to approve the loan. Since my GF wasn’t planning to buy a house for a long time she agreed to do this, and for some reason she was also put on the title as a 1% owner. Her mum is now looking at refinancing the loan in her own name only so that my GF isn’t stuck with the liability.
Today the property is probably worth around 250k, and the loan is just over 90k, so there is an abundance of equity there. While my GF is saving up for a deposit of her own it might be good for her to use some of the equity to leverage into managed funds etc.
My questions is, what’s the process for her setting up a facility in addition to the one in her mum’s name, whereby she can draw on the equity for her own investments?
Cheers,
CarlCarl
I assume you are referring to a situation where your g/f and her mother purchased the property as Tenants in Common as you refer to her 1% split.
If your mother is looking at purchasing out her interest in the property then she will be required to pay stamp duty on the increased value of the share.
I am sure each State varies but in Qld you would only need a letterhead valuation from a local real estate agent and duty would be calculated on this figure. The transfer document would then reflect that her 1% share was being bought out.
Now in saying this is also appears that your g/f wishes to use the available equity in the property.
Assuming that she is no longer a party to the title she would be unable to lend her income to support this additional borrowing. This means that her mother would need to show that she can service the total amount of borrowing on her own.
Ensure that it is is separately structured as you may need to contra the interest payment to ensure that each part can make the appropriate interest claim.
Dependant on the State in whicAs your g/f is on the title with the consent and agreement of her mother they would be able to make application for further borrowing.
Both would be asssessed for serviceability and any other liabilities they have taken into consideration.
As the loan will be for investment purposes ensure that you keep it separate for ease of accounting at the end of the year.
Cheers Richard
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Richard Taylor | Australia's leading private lender
Hi Richard
They hadn’t actually planned to take my GF off the title, at least not yet. As far as I know her mum was just going to take her off the loan, so the facility was in her mums name only.
Is it fair to say that with the two off them on the title (as tennants in common, 99/1 split) there could be two facilities, one in the mums name at 90k or whatever it is, P&I, and a second one in my GF’s name, call it 20k or so, IO, for investing?
My GF’s mums servicability isn’t exactly crash hot, so I don’t believe that the bank would let her take out another loan on top of whats already there, so unless the new facility was in my GF’s name we’ll have to look at something different.
Cheers,
Carleh.. bump .. anyone got an answer?
hi carl_vic
I would go the other way
and draw the equity out of the house and increase the gf liability as its the easyest and you can split the loan talk to a broker one has already posted here.
your gf is going into debt anyway so you are moving chairs on a boat once see is a 50/50 share holder she may what to payout either party if there is growth there and you have said there is then us it.
It is going to be difficult to get a lender to lend on a house with two owners and two separate lends on it can be done but the way above is alot easier.
don’t know your state but richard should be able to do this if you catch him on a good day he has been sharp with a couple of posters lately.
good luck hope if helpedhere to help
If both are on title, then both will need to be on the loan, or a loan in one name only may be possible, but the other will have to guarrantee that loan. They could for example get a St G portfolio loan with splits in different names
The net result is both are responsible for the whole loan = hurts serviceability.
Terryw
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Parramatta
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Ah ok… It’s all starting to make a little more sense now.
Ok, so lets imagine that my GF is not going to be in a position to buy any property in the next while, and the purpose of the loan/investment is just to save up for a deposit for a property, then her servicability won’t become an issue until she wants to use her capital, redeem her funds, and thus pay out her loan. In this situation it doesn’t matter so much if her serviceability is hurt in the short term. When her funds are redeemed her mum can then refinance the loan in her name only (with my GF being taken off the title if necessary) which would free up my GF’s servicability for her own property.
My question then is, if they split the loan, add a 20k part, IO that my GF can use for her investing, because they are both on the loan, can my GF claim the interest payments on the 20k split as a deduction for herself (provided she can prove the funds were used to generate taxable income for herself only), or are they forced to claim the deductions relative to their title ratios?
Thanks a lot for helping out guys, I really do appreciate you taking the time.
Cheers,
CarlCarl
ATO will look at the purpose the funds were used. Title in not relevant in this situation.
Terryw
Discover Home Loans
Parramatta
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Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terryw. I think the next step is to speak to the bank then.
Cheers,
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