My Broker got it wrong - Name/s on Loan

[womble66]

Hi all,

My existing IP that has the title in my name only but is funded with a 80% LVR loan that is in joint names (my name and my partners name) as this is the structure that was recommended to me by my broker who also is my tax accountant and pseudo financial planner.

I have just found out the same broker who has now arranged my new 80% LVR loan for my new IP (which maybe a PPOR at some stage) and will also have the title in my name only has had the loan structured differently being that the new loan is created in my name only with my partner as a guarantor only and not listed on the loan offer.

I am no expert in these matters so when I made the application for the new loan with the broker I requested it be the same as the existing loan as nothing has changed for me but for some reason that is not what I have ended up with and now settlement is fast approaching. I only worked it out when lodging the final paperwork at the branch today and as my partner had to sign heaps of paperwork too I assumed it was all good and didn't get the old loan docs out to do a comparison (lesson learnt).

Can someone who is more knowledgeable in this area please indicate what may be any of the long or short term impacts, if any, of this difference for me?

I have already found that it makes future account and loan management difficult for my partner to do plus a few other account issues.

Tried to call the broker this afternoon but was too late so just trying to get some early information before I speak to him on Monday.

Cheers.

David

 

[Aaron_C]

The difference is thus:
In the first case, it sounds like your spouse was a 'co-borrower'. So she's not on title, but she is a co-borrower because she is your spouse. No additional paperwork needed.

In the second case, your spouse was probably put down as a 'guarantor' which triggers more legal documents even though the end effect is the same.

 

[womble66]

even though the end effect is the same.

Thanks Aaron and the terminolgy and explanantion you provided is correct.

So it just going to be accessing the accounts in the future that will be the difference. New one needs partner to have authrorities completed and different plastic cards apparently.

 

[Terry_w]

Why have a spouse guarantee a loan or go on the loan? Not good from an asset protection point of view. Will also adversely affect borrowing capacity moving forward.

 

[Rolf Latham]

Why have a spouse guarantee a loan or go on the loan? Not good from an asset protection point of view. Will also adversely affect borrowing capacity moving forward.

serviceability usually............ or lenders pushing for "maximum contribution"

ta
rolf

 

[womble66]

Why have a spouse guarantee a loan or go on the loan? Not good from an asset protection point of view. Will also adversely affect borrowing capacity moving forward.

This v v v

serviceability usually

We are not high income earners but have reasonable cash assets so deposit are not difficult but wages makes the bank get nervous so we include both of our incomes just to ensure we can get the "tick" to move forward.

No real plans to have more than these two (2) properties unless one of them booms in value or we significantly increase our income stream or win lotto.

Thanks Terry & Rolf.

Do you have a view on the impact of the differences?

Cheers.

David

 

[handyandy]

If your wife is a guarantor then I would have thought that she would have had to see an independent solicitor and get a loan guarantor indemnity signed of. Namely that the legal obligations have been explained to her and that she understood those obligations.

Sounds like this was missing (if she didn't have to see independent soli) and as such she can always claim she didn't know what she was signing if hings go bad.

Cheers

 

[womble66]

No, she had independant legal advice as required by a solicitor and she was explained all the ins and outs and had all the paperwork signed. I just wrongly assumed that this was new regulations and not that the loan structure was different.

I was too interested in getting the loan approved so when the offer was receieved I just checked the loan value, T&Cs, securtity and interest rates etc and didn't realise we had gone from the previous "co-borrowers" loan structure to a "guarantor" structure for the new loan.

I am just interested in the difference and why?

 

[Aaron_C]

womble - it is just a technical difference. As soon as someone is listed on the documents as a 'guarantor' it means that the bank/solicitors automatically assume that the guarantor needs independent legal advice because there is no 'benefit' to the guarantor in providing that guarantee. This is due to the case law (Amadio, Garcia) where guarantees given by parents were set aside because they didn't understand english / there was no benefit to them. This tends to happen even with directors who guarantee their company's borrowings despite them being the only director/shareholder...it is ludicrous imo.

With a co-borrower, the fact that the co-borrower is a spouse has a presumption that there is a benefit despite the spouse not being on the title. This is because the marriage is the benefit itself. Hence no legal advice is needed.

So what happened is that your broker has made a mistake on the initial loan application which has triggered this. It is not new procedure.

As for servicing, do you really need to put down both of you as guarantors/borrowers? Can't you service by yourself? Maybe your broker has run the numbers properly but usually I always avoid trying to put both spouses as borrowers for a purchase with only one spouse on title. In terms of credit you either service or you don't, there is no in between or 'mitigation'. More income from the other spouse is good of course but it doesn't affect the application (assuming primary spouse services already) unless credit scoring is involved. Given the loan is only 80%, depending on who the lender is, if you can show servicing by yourself there isn't any need to chuck your wife in there too.

 

[womble66]

Thanks again Aaron.

Incomes are on the low side but credit score is not an issue. Names on, or in this case not on, the loan docs does not seem to be a real issue either way.

Just when the partner gets told this loan is different and I can't explain why it was a bit of an issue.

All happy now.