Bank Loans and Security

can someone tell me how this works

I want to sell a property but not discharge loan, use another security/property similar value which I will be purchasing. Trying to coincide timing?

Can I do this? Is there a limit on loan ie over $1m?

Does this means banks will not require financials

 

Substitute the security.

If you cannot settle at the same time then ask the lender if you can keep the loan open using a term deposit.

 

Thanks tw
How does this work exactly

 

Ideally you have a same day settlement of the two properties. You do a substitution of security of the existing loan from one property to another. You can get a second loan against the new property if there's a shortfall (with the same lender of course).

It is possible to do a security substitution if there's a short gap between the two settlements, but I've never actually done this myself. In fact I've only ever done one security substitution. Deals rarely seem to get enough ducks in a row to make it work.

 

You just tell your broker or lender that you will be selling a property and want to discharge the mortgage, but keep the loan open.

 

Thanks Terry

 

MTR, I believe your question is similar to my post

substitute/portability feature of a loan

I was thinking my broker doesn't get a new commission in the process for this substitute ( probably just the ongoing retainer) so am asking Lender's retention team direct about the ins and out..
I sold a Sydney property last year, but this idea never come pass me.. I would use if I was aware.

 

Great thanks

 

You can do this....some banks will let you leave the loan open if you pay the interest (gets expensive) and put the funds from sale in a term depsoit. However, they will only pay about 2.7% interest max. So gets very expensive on large amounts.

Also...it only work on hard securities - i.e. land or property. Cannot change to construction loan value as that is a different loan type...and will need the whole assessment done.

I think banks will close this loophole over time also....

 

What a joke - go back to the broker who set the loan up. They're getting a trail on the deal and likely received a nice upfront payment.

 

They won't get paid upfront on doing a port, but they will get to keep their client, and the trail. They would want to know, and help, contact them.

 

Because I am a nice client ... I know I can go to the broker and he will glad to do this for me.
my specific loan was set up years ago, broker would have the initial upfront (bigger lump sum) and trailing commission (smaller ongoing payment)....I don't think you get another upfront commission for the swapped property, maybe the trailing part, not sure..

A big plus, is I am starting a dialog with the Lender's retention team, and often get the intricate details of the deal...what I can do and can't do.
I could be wrong that most broker don't do security swap that often. Even they do, it is scattered over multiple lenders, each call for different set of regulation for the security swap.

 

@RetireRich101 nice for the broker, collecting without doing maintenance.
Great that you're getting details of the deal, something the broker might want to also do.
Multiple lenders, different set of regulations... we're talking broker's here....

 

Banks can take cash term deposit or property as security for the the sub. Question around property as security...

1. How does the Lender1 take another property security , say this property is finance with ANZ which has a loan of $300k and property is valued $700k?
2. Would the Lender1 $400k as security?..
3. Do they need property valuation, even if you use this property as security for 90 days while finding sub property?

 

1. a bank would want a first mortgage.\
2. no
3. yes

 

can you elaborate on (1) with the example 700k valuation but 300k is mortgage Lender2

 

I am not sure I understood your question now.

If a lender has mortgage over a $700k property for a $300,000 debt an this property is sold, then a $300k loan needs to be paid back unless other security is available.

if a separate lender, Bank B holds property B as security then lender A will probably not take a second mortgage out over this property. They will want the loan refinanced with them and then LVRs maintained.

 

This answered my question. thanks Terry.

You really need to have 2nd/other property with the same Lender( that is doing the subs) and this property used for security needs to be relatively low LVR for this to work.
If refinancing and new credit assessment works post APRA, the this subs isn't attractive...