Can bank 'force' me to pay down debt?

Discussion in 'Loans & Mortgage Brokers' started by SupaRex, 28th Dec, 2018.

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  1. SupaRex

    SupaRex Well-Known Member

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    Hello.

    Here's my situation:

    I have four properties, one OO, the others investments.

    Each property secures one loan.

    I'm considering selling one of my investments. I have enough equity in my other two investments to secure all three loans. If I was able to switch the security so the property I plan to sell is unencumbered, and then sold that property, can the bank "force" me to pay down some of the other loans?

    Thanks to the Royal Commission, my serviceability is already an issue (in the banks eyes), and although I'd have a stack of cash sitting there, (I think) my serviceability would be worse, because I'd no longer have the income from that rental.

    Am I missing anything here (probably)? Is there something wrong with my strategy, or something I've overlooked? Are there any "unintended consequences" I'm overlooking?

    Appreciate everyone's help!
     
    SupaRex, 28th Dec, 2018
    #1
  2. Marg4000

    Marg4000 Well-Known Member

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    Are you able to switch security to release one property?

    Especially as you say serviceability is already an issue.
    Marg
     
    Marg4000, 28th Dec, 2018
    #2
  3. wylie

    wylie Moderator Staff Member

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    We plan on removing one IP from the bank (currently held as security along with another two houses). These are cross-collateralised (well before we understood what that meant).

    I'm told this should be easy to do (but let's wait and see).

    That allows us to do what we like with the unencumbered property.

    As it would no longer be tied to any loan, the bank should have no say in where sale funds go. (But I understand there may be clauses that allow the bank to do what they like with our other loans if they think we are at risk?)
     
    wylie, 28th Dec, 2018
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Nab can be funny when loans are crossed, but if you are stand alone or not with NAB, then prob no issues

    ta
    rolf
     
    Rolf Latham, 28th Dec, 2018
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Sounds like a banker or a broker has an interesting interp.

    The RC hasnt handed down any findings.............

    ta
    rolf
     
    Rolf Latham, 28th Dec, 2018
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  6. SupaRex

    SupaRex Well-Known Member

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    I don't see why it would be an issue.

    All I'm doing is changing what secures what, my serviceability won't change (until I sell).

    But then again, that's why I'm asking ;)
     
    SupaRex, 28th Dec, 2018
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  7. SupaRex

    SupaRex Well-Known Member

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    No, they haven't, but the banks have already tightened their lending criteria because of it.
     
    SupaRex, 28th Dec, 2018
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  8. SupaRex

    SupaRex Well-Known Member

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    Each loan is secured by one property, so no crossing.

    Just wondering if there is something in the fine print somewhere that says NAB can force me to pay down some of my other loans.
     
    SupaRex, 28th Dec, 2018
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  9. SupaRex

    SupaRex Well-Known Member

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    Slightly off topic, but still relevant. Is my understanding of CGT correct?

    Say I sell for $600k. Bought for $200k. Capital gain of $400k. 50% exemption, I pay marginal rate (~33%) on $200k = $66,000.

    Is that right?
     
    SupaRex, 28th Dec, 2018
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  10. tobe

    tobe Well-Known Member

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    Yep, ish. You can deduct stamp duty and other purchase costs, renovations if you did any etc.
    best to get advice from your accountant.

    Regarding the portability questions, are you in contact with the broker who helped you set these up? They could instigate porting one of the securities/loans to another of your properties. In theory it’s possoble but as @Rolf Latham mentioned Nab are funny with releases.
     
    tobe, 28th Dec, 2018
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  11. Marg4000

    Marg4000 Well-Known Member

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    If you are on a marginal tax rate of 33%, then adding a $200K capital gain to your taxable income for the year will almost certainly put some of the gain into a higher tax bracket. Your accountant can run the figures.
    Marg
     
    Marg4000, 28th Dec, 2018
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  12. Terry_w

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

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    There is something in the fine print which would say that any property held as security secures your entire debt. Known as the all monies clause.

    But if you are not in default you can probably do what you want to do if planned carefully in advance.
     
    Terry_w, 28th Dec, 2018
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  13. ACMH16

    ACMH16 Well-Known Member

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    This sounds like you're concerned with whether you can swap the security when you should be concerned with the fact you can't swap the purpose of the loan/deductability of interest...
     
    ACMH16, 30th Dec, 2018
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  14. wylie

    wylie Moderator Staff Member

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    Re-reading the initial post, there is no mention (unless I missed it) of the property value (to be sold) or the loan against that property.

    I'd assume that the plan would be to repay the loan associated with that particular property, because the interest would no longer be able to be claimed.

    I know when we sold a property once, our bank allowed us to repay the loan associated with that property. This was also crossed with our other loans/properties. They could have held the remainder of the sale proceeds and insisted we reduce our other loans.
     
    wylie, 30th Dec, 2018
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  15. SupaRex

    SupaRex Well-Known Member

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    Sorry if I wasn't very clear.

    I have three investment properties, worth about $2M.
    I have three loans, each property secures one loan. The loans total about $1M.

    I want to sell one of the investments, without paying out the associated loan. So I want to have two properties, securing three loans. It should be fine (with regard to LVR).

    Lets say I end up with $500k from the sale of the property. What I want to know, is can the bank "force" me to pay down some of the $1M in loans, even though there is ample security for them.

    I want to spend the $500k on other things.
     
    SupaRex, 30th Dec, 2018
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  16. wylie

    wylie Moderator Staff Member

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    My understanding is that if the bank releases the title for that house (as the other titles it is holding covers the total debt) you may not have to pay out the loan associated with that property but won't be able to claim the interest against your tax.

    @Terry_w ?
     
    wylie, 30th Dec, 2018
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  17. SupaRex

    SupaRex Well-Known Member

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    Why? The purpose of the loan hasn't changed. And it's the purpose that defines tax deductability isn't it?
     
    SupaRex, 30th Dec, 2018
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  18. wylie

    wylie Moderator Staff Member

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    But you would no longer own the house. How can you claim interest on a loan for purchase of an investment property once it is sold?
     
    wylie, 30th Dec, 2018
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  19. SupaRex

    SupaRex Well-Known Member

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    Hmm.... I guess because the purpose still hasn't changed?

    I'm not sure, that's why I'm asking. I'd speak to my accountant, but he's on holiday...

    Does anyone actually know what the law is in this regard?
     
    SupaRex, 30th Dec, 2018
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  20. wylie

    wylie Moderator Staff Member

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    But it has changed. You no longer own the house the loan was used for.

    If I sold a house, didn't pay down the loan, and bought a luxury vehicle with the proceeds, do you think the ATO would be happy that I claim the interest on the loan against my income?

    @Terry_w?
    @Rolf Latham ?
    @Paul@PFI ?
     
    wylie, 30th Dec, 2018
    #20
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