Using a HDT

[fiona1j2k3l]

My husband and myself are looking at purchasing our first neg geared IP through a HDT. I have no income and no assets. I understand the concept of borrowing in my husbands name, using the borrowings to purchase units in the HDT, and then the HDT purchasing the property. HOWEVER, I can't understand why a bank would loan money to my husband when the property (against which the loan is secured) is not owned by my husband. Can someone explain this to me?

Thanks,
Fiona

 

[mcdeyess]

Banks are funny

Having just been though this I will provide you with the details of my experience.

Banks understand the concept of a HDT and know that although you do not OWN the asset you do control it and derive benefit from it. They will also make you sign a liability clause stating that if the trust cannot get them their money then they are coming after you.

Also depending on how your HDT is drawn up some banks won't look at you at all. For me Comm bank approved me for a loan but then didn't want to know about my trust. In the end I went to Macquarie, very handy to have a mortgage broker who understands a little about trusts and a lot about banks.

Mine may have been more complicated as my trust has a company as the trustee. I am director of that company

Cheers,
McDeyess

 

[JamesGG]

Hiya,

From what I've seen so far, the banks will hold the trust's property as security, and ask for a guarantee from the named beneficiaries / directors. Not a big issue for most banks, although a few have been known to be difficult about this.

I'm sure one of the brilliant resident brokers (Rolf? Rolf? Simon?) will be able to explain a little better, though.

Cheers

James.

 

[Buzz]

Some lenders will not touch HDT's. Others do get it. Essentially they expect the individuals to be borrowers and the Directors of the company acting as trustee of the trust to be guarantors to the loan. Helpful accountants on the forum can give a better explanation detail.

One thing to note is most lenders charge extra for guarators and often extra for contracts to be drawn up and they expect you to visit a lawyer and get an independant advice certificate signed ( at extra costs to you). Macquarie in particular does this - there is often a bit of extra work involved but as mentioned the brokers who deal with these regularly know what is needed and can ease any pain.

Jane

 

[asdf]

Interested in the advice you undertook in setting the HDT up. You must have read some of the previous posts about the potential of ATO denying excess interest expenses over and above rent income. Then theres the issue on redemption of units at market value?? when you're ready to distribute capital to the low income earner. Obviously your adviser have explained the risks to you or sufficiently confident that their deeds have been tightly drafted.