Extra Security

[Marina]

Hi,

I was wondering about the following scenario.


If I have a loan with the bank, and offered them extra security ( title with no mortgage), am I able to access some extra equity without having to refinance the loan and paying discharge fees on the first loan.

I was told this will be a whole new application and therefore be up for $5k in break costs.

The same thing goes for when the original property goes up in value, and the paid out title is no longer needed, I will have to refinance again. ( more costs)

For some reason I just thought that I can give the free title as security for
the first loan, upstamp the original mortgage, and then when the 1st house
has grown in value , enough to stand on its own at 80%, I could just ask
for the title back.
Nice and simple. No Hassles.


Could anyone tell me how the banks would handle this .

thanks
Marina.

 

[Rolf Latham]

Hmmmmm

Smells like a challenge, and someone at the bank is confused.

You should be able to sub security with no real issues since this doesnt affect the fixed rate loan. As long as you leav enough security to meet the original LVR you should be fine

ta
rolf

 

[Marina]

Hi Rolf,

Would it make any difference if this was my mums title.?

my property loan is 301500 and that is at 90%.

since then it has gone up to 350K and my mums place is about 250K

so total assets would be 600K at 80%= 480 less original loan of 301500K
( I should get some mortgage insurance refund as well I think)

I could ask for an upstamp of around $178k.

Can I still use the title as sub- security, or this is a whole new application.
They told me as it is my mums title they need to do a whole new application with the break costs.

thanks in advance
Marina

 

[Kristine..]

Hi Marina

What you are suggesting seems all very innocent and simple on the surface, but is a morass of legal and moral pitfalls.

Leaving aside that shifting the loan from one security to another would require discharge and registration of mortgages, new loan documents, valuations etc all of which would cost money, the lender would certainly be within their right to require a new application from you and thus break fees for the existing credit facility if that is how your loan was originally established.

However, and this is a very big however, what is your dear old Mum going to get out of this? Let us say that she is fully informed of the risks to her of putting her house up for security for a loan which will benefit you, what is she going to get out of this? What benefit will come to her to compensate her for the risk?

You don’t own the property, she does, so how are you going to offer another person’s property as security for a loan?

Currently, you own property with an estimated market value of $350,000, and you have a loan of $301,500. By increasing the existing loan, or if in a fixed interest rate period, adding a supplementary loan to the property, you would access a further $13,500 (less costs) assuming that you can service the combined borrowings.

If you are looking at accessing equity for the purpose of purchasing another property, that other property could simply be bought using a 100% loan and the $13,500 could be put towards stamp duties and other costs associated with the purchase and finance establishment fees.

If you want more than the $13,500, and assuming that your mother would be willing, it would be simpler and safer for her for her to apply for her own loan and to lend those funds to you with a contract between the parties (her and you) and she can then place a caveat over your property either existing, or new, or both.

For added security for her, you could offer her an unregistered mortgage which could be signed off but not registered unless circumstances arose where the registration of the mortgage became necessary.

Be aware that even between spouses which is a quite different category of law than between parents and children or other relationships, lenders will rarely allow one owner to simply give permission to the other owner to go ahead and mortgage the property for the purpose of raising loan funds in one owners name only.

If a lender allowed you to mortgage your mother’s property, what would stop a lender from allowing Bill Bloggs to mortgage your mother’s property? How would it look on A Current Affair to have your mother standing in the street, in tears in front of a For Sale By Mortgagee sign, that she had allowed her home to be mortgaged so that someone else – no matter that you are her child – could financially benefit at her risk.

Marina, there are good ways to do things and not-so-good ways to do things.

Your wealth will grow over the years and will be no slower in it’s growth if you stick to the appropriate ways to do things.

Buy your own properties as, and when, you can afford to do so. Leave your mother’s property alone. Your good and ongoing relationship with her is worth 1,000 houses.

Cheers

Kristine