Switching to IO on a split loan.

Hey brokers,
Just a quick question regarding IO on a split loan. My brother and I own a property 50/50 with split loans through Bankwest.
Unknowingly to me my brother recently went to Bankwest and asked to go IO on his loan to free up some cashflow.

Now I have had excess cash in my loan so have not been watching it closely and only recently realized my loan was also IO (mind you online banking does not tell you this, you just need to work it out).

So two questions I have is.
Is bankwest even allowed to do this? I would have thought they required my consent as well? It seems wrong that this is allowed.

Secondly can you have a split loan like ours with half IO and half P+I?
 
They probably misinterpreted your request when your brother's loan was switched to interest only. They probably thought you both wanted interest only.

Did they give you any paperwork to sign? You would have agreed in writing.

Also, is it really a big deal? If you really want to make principal & interest repayments there's nothing to stop you from simply making extra repayments on your portion of the loan sufficient to effectively make it P&I. I would suggest using an offset account instead of making extra payments however.
 
They probably misinterpreted your request when your brother's loan was switched to interest only. They probably thought you both wanted interest only.

Did they give you any paperwork to sign? You would have agreed in writing.

Also, is it really a big deal? If you really want to make principal & interest repayments there's nothing to stop you from simply making extra repayments on your portion of the loan sufficient to effectively make it P&I. I would suggest using an offset account instead of making extra payments however.

Hey Peter,
Sorry I should have been clearer in my post, it is not an issue in the slightest, I am a big advocate for IO anyway (As long as the wife does not see the money that sits in the offset as new shoes :p).

The thing I found more interesting though is it was done without any consent from me. As you said "You would have agreed in writing" but this was not the case at all. My brother asked and they changed it for both loans without so much as a letter to me. Again I am happy with the change but just as a budding broker I am more interested for my own knowledge if this was acceptable from the bank? I would assume not.

Also just on my other question can you structure a split loan to be half IO and half P+I?
 
Yes, you can have one account as P&I and another as I/O. There may be lenders which aren't consistent with this statement, but generally I think it's accurate (keep in mind people rarely deliberately do this).

On the issue of consent, it just occurred to me that the account probably has an authority of 'either to operate', which means either you or your brother can make changes without getting consent from the other person. It happens quite a lot in joint accounts between couples. Either one of you can make all the changes they like without getting permission from the other person.

It's been a while since I saw BankWest documents (they're an awful lender IMO but that's another rant), but I imagine you signed documents allowing this method of operation when the loan was set up.
 
Thanks Peter, sounds as though that is what has happened there.
Bankwest have been good enough but since I am about to start my portfolio early next year I will be looking at other lenders.
When we did first sign up they offered what i was told to be something unique whereby my brother and I were both given separate offset accounts for our loan splits.

As an aside

whats the exit strategy ?

ta
rolf

Hey Rolf,
Good timing of your question as I just got off the phone with council who are making my life miserable at the moment. I am trying to make a simple amendment to my planning permit and ofcourse council will not make it simple!

Anyway I have approval for a second dwelling at the rear, the exit strategy is to subdivide the land and sell the vacant land (I have contacted Paul from SS and we have discussed this from a tax perspective). Once that settles I will then purchase my brother out of the front property (CGT exempt for him as its still his PPOR). I will of course need to pay additional stamps on this and will be the time where I look at other lenders more fitting to my future goals.
We have also agreed on a value which will sit under market value so will also need to find a lender who will value it based on market and not the sale price to ensure I am not required to pay any LMI.
 
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