Equity loan payout when selling

We have an equity loan secured against an IP which was used as a deposit for a further IP. if we sell the first IP (that has the loan against it) , do we have to pay out that equity loan? Or are there other options?

The LVR of the new IP is 90% and bought in April15.
 
If you sell a property which is mortgaged and securing a loan then the mortgage must be discharged before settlement. This generally means the loan must be paid off.

But you can also keep the loan open and substitute the security to a different property. Tricky sometimes.

Paying off the loan will mean lost tax deductions so best avoided.
 
We will be buying but buying a PPOR. However we will also keep another IP...maybe can put that equity loan onto that??
 
We will be buying but buying a PPOR. However we will also keep another IP...maybe can put that equity loan onto that??

As long as there is enough LVR in the IP.

Will your PPOR settle before you discharge the mortgage on the sale IP?
 
I doubt it as we bought a new property using 90% LVR only in April.

with the purchase of the family home we can arrange it to be before or after settlement of sale of the IP because we are buying the house off my parents in a private sale. Which order do you recommend?
 
I doubt it as we bought a new property using 90% LVR only in April.

with the purchase of the family home we can arrange it to be before or after settlement of sale of the IP because we are buying the house off my parents in a private sale. Which order do you recommend?

Best to do it all at the same time maybe.

Or settle on the PPoR purchase and set up a separate LOC at the same time. Once settled use the LOC to pay down the investment split on the one you are selling.
 
As Jess said, securing against cash could be possible but can depend on lender. Could also possibly get family pledge involved for further security? once again, can depend on lender.
 
Hi Jess that is intriguing, I've not heard of using term deps that way. How does it work? We have no term deps set up now.
 
Speaking of family, what makes this more interesting is that we want to buy my parents home to be our PPOR ... They want to downsize and said they need to sell.

Yet we also thinking what is best for them re govt rules for retirees. They are pensioners in good health with no other property , and got savings. If they sold up, they will buy something smaller to live in. They are looking for good structures to protect their assets. Is it better for them to keep the house, renovate it fully ( to have less money), and get more pension? ?
 
Consider your parents keeping their house and renting one you own. Need to work out effects on pension though. But when you factor in selling costs and buying costs it will be around 10% of the value gone. You also have your costs of purchasing it too.

It could still be CGT exempt for up to 6 years. - check the land tax implications.

And with the loan the term deposit is possible, but it will be difficult to arrange.

Another possible solution is to refinance your investment LOC loan with another lender - mum and dad. Temporarily.
 
Hi Jess that is intriguing, I've not heard of using term deps that way. How does it work? We have no term deps set up now.

It will depend on your lender as to whether they'll do it, but basically it's a security swap - you release the property you're selling, and replace it with a term deposit at the same bank (which is funded by the settlement proceeds that would normally be used to discharge the loan).

Then once your IP has grown enough in value, access the equity, pay off the old loan and release the term deposit.

Get tax advice, but deductions should remain.
 
There?s something with pensioners whereby their PPOR is exempt when calculating the pension amount. So you could live in a $3m house and still receive full pension. What is used to assess the pension is your income from other sources such as annuities, savings, etc. So my parents receive about a half pension, they don?t receive full pension.

They?ve toyed with the idea of doing a massive reno on their home to improve value and use their funds that way. The ?pro? of renovating the PPOR is it would make the resale value of their home better and diverts assessable funds so they?d receive a bigger pension, because the money would go into something that?s not income assessed (although I believe Abbott may be changing that???) Not so great for us coz we want to buy it! J

Terry ? yes, in an ideal world we could do a house swap. But none of our IPs are suitable for them to actually live in, as they are big homes or a TH with stairs?

We could just ?rent? the home off them once they had decided and moved?but I guess it depends what they do, they?d need funds to finance purchase of another PPOR .

The basic garden variety approach is a straight sale: we agree on a price, we sell 2 IPs, pay out loans (or do term deposits), and buy their place.

They can then rent it off us til they are ready to move (ie they just pay interest on mortgage).

I guess I?m looking if there is a more financially savvy way. Because, as Terry said, so much is lost in the transaction. If they had had their home in a Discretionary trust, could they have just ?transferred? the house to us?
 
I guess I?m looking if there is a more financially savvy way. Because, as Terry said, so much is lost in the transaction. If they had had their home in a Discretionary trust, could they have just ?transferred? the house to us?

They could pass control of the trust to you. But under the social security Act there are 2 tests which would capture trust assets and deem them assets of the person - the source test (e.g tomato or BBQ) and the control test.
 
They could pass control of the trust to you. But under the social security Act there are 2 tests which would capture trust assets and deem them assets of the person - the source test (e.g tomato or BBQ) and the control test.

Dept on Inhumane Services don't like pensioners and connection with trusts. Control, benefit or otherwise. The "forms" they send to conduct their inquisition look like the white pages and usually result in loss of pensions and gifting issues and loads more.
 
Jiggling equity loans?Is this possible.

We want to sell IP1. But it has two equity loans against it up to a total of 92k. We need a deposit of 100k to buy our PPOR and so if we could move the equity loans off of this property, we would not need to sell two properties, just the one. If we did not have to pay out the equity loans, we would get our 100k deposit from the sale of IP1.

The loans are:

40k for deposit for IP2 (Apr 14)
52k ? dep for IP3 (Apr 15)

IP2 has gone up 70k since purchase (maybe more, last val was in Dec 14). Would this work: get a reval to see if IP2 has gone up by 92k and if so, put all equity loans against it. Or, if it hasn?t gone up enough to cover BOTH equity loans, is there any chance of putting the 40k against IP2, and splitting the 52k to put what we can onto IP2 and the leftover onto IP3??? The reason is IP3 will not have gone up by much in just a month.

That way when we sell IP1, we can have all the extra cash from the sale of IP1 to use as a deposit for PPOR and the equity loans are still secured against IPs
 
If you have equity in your IP's it's definitely possible to access the equity to pay off the small loans. It's just a normal equity release.

Like Terry says, we'd need to get vals done and see exactly how much there is to access.
 
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