Building property with funds from LOC ? notifying Current Mortgagee

Discussion in 'Investment Strategy' started by See Change, 2nd Feb, 2020.

Join Australia's most dynamic and respected property investment community
  1. See Change

    See Change Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,864
    Location:
    Sydney
    We're about to redevelop a property.

    Mortgagee with First Mac . We will be using funds from a LOC to pay for the building process .

    I know the proper line is that we should notify them and get their approval . They will want proof that we can finance this , but will they be happy with a statement showing funds available in a LOC with another bank ?

    A couple of people have suggested we just don't tell them until the deed is done but if we breach any conditions , they could have the option of calling in the loan . ( Worst case scenario )

    One option would be for us to put the funds equivalent to the Mortgage in First Mac offset account during the building process .

    Any other thoughts / suggestions ?

    Cliff
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,862
    Location:
    Australia wide
    The mortagees main concern will be destruction of the property reducing their security. They would want to see funds to complete and build plans before you giving the ok. Don't think they would want to control those funds tho
     
  3. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    22,018
    Location:
    My World
    I am in this camp
    Just leaving funds for build in loc and just proceeding
     
  4. sash

    sash Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    8,562
    Location:
    Sydney
    Be very careful. I took am about to do this....but I am being really careful.

    The banks has said no issues but I want to cover this off in writing. Why am I doing this? That is because the way the bank contracts are structured...they will want to know and you should have something in writing to protect yourself.


     
    MTR likes this.
  5. See Change

    See Change Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,864
    Location:
    Sydney
    Thanks for the advice especially RE getting written confirmation .

    We will give them notification .

    In reality we will put enough funds in the mortgage offset to take the repayments close to zero .

    cliff
     
  6. sash

    sash Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    8,562
    Location:
    Sydney
    Read the bank contract most have in their clause that you have to ensure that it is insured and they are made aware of any changes you make to the house.

    I doubt anything can wrong...but if it does and you have other loans that is when it will get messy.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    20,353
    Location:
    Sydney or NSW or Australia
    As a knockdown/rebuild, the builder's contract should cover the cost of all new structural works.

    Where it is a refurb/extension, the building contract may exclude the value of the existing structure retained. Builders generally insure the works not the entire asset. Eg. if you do building/fitout works in a shopping centre, you cover the works in the shop not the entire shopping centre which is worth $B.

    Have a chat with your insurance broker to ensure that you are covered either under contractor's all risk (CAR policy) or if you need to effect your own insurances.
     
  8. See Change

    See Change Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,864
    Location:
    Sydney
    Hi Scott

    Knock down / Rebuild .

    Cliff
     
    Scott No Mates likes this.
  9. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    20,353
    Location:
    Sydney or NSW or Australia
    @See Change - if that's the case, you would need to provide evidence of insurance from the builder and possibly have the mortgagee noted on the policy. Check with the bank.