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Co-borrower or Guarantor

Discussion in 'Property Finance' started by pinewood, 27th Jun, 2016.

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  1. pinewood

    pinewood Well-Known Member

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    In order to avoid being a guarantor on a loan secured by a home with joint tenants, is it possible to sign as co-borrowers even if only one spouse works and title on IP is name of working spouse. How will this affect tax deductions to working spouse?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes.
    There may be some differences, but I can't see what they are really.

    Generally no change in who claims the interest.
     
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  3. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

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    Yes, spouses can borrow in both names while the title is held in a single name. Tax deductibility normally is determined by the name on the title.

    Hope that helps :)
     
    Last edited: 27th Jun, 2016
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  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    It's more common for spouses to be a joint borrower than a guarantor.

    In most situations, tax implications are assigned to the person who owns the property. There are some exceptions so it would be worth mentioning to your accountant.


    If the person on the title is the one working and thus providing all the serviceability, I'm having trouble thinking of why the non-working person needs to be on the loan. There's no benefit to them being on the loan, but it does give them responsibility for the loan.
     
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  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not always.
     
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  6. pinewood

    pinewood Well-Known Member

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    Thank you all for your comments. @Peter_Tersteeg the benefit is to avoid being a guarantor as loan secured by property in both names.
     
    Last edited: 27th Jun, 2016
  7. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

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    Thanks, I edited it just after I posted it to say normally :)
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    being a borrower rather than a guarantor doesn't change much.
     
  9. pinewood

    pinewood Well-Known Member

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    Terry, it appears like there's more legal implications, as a borrower, one can waive legal advice but as a guarantor it is a requirement and therefore legal fees to incur in order to get that advice.
     
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  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It looks to me as though you're crossing the loans?

    There are much better ways to structure this - use the equity in the home with a separate loan split, and make the IP stand alone. That way your partner only has to be co-borrower on the PPOR equity, and not the whole lot.
     
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  11. pinewood

    pinewood Well-Known Member

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    Hi Jess, no not crossing, made that mistake before, never again! I will ask about the split option. Thanks!
     
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  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I'm confused. The first post indicated that the "title on IP is name of working spouse". Now you're saying it's not?

    Regardless, hopefully this will clarify things for you...

    Lenders will require all people on the title of the property to be on the loan, generally as a borrower but one person could be a guarantor in some circumstances.

    If only one person is on the title, then that person must be on the loan as a borrower, but their partner can also be a guarantor or borrower if they want to be. The most common reason for this would be to demonstrate serviceability. You might also be required to do this if a second property was also being used as security ( which would be cross collateralisation).
     
  13. pinewood

    pinewood Well-Known Member

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    Thanks for additional info @Peter_Tersteeg. Yes that's correct. PPOR 2 names. IP one name. Loan secured by PPOR therefore the guarantor issue comes in.
     
  14. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    So what you're saying overall is you're taking out an equity loan against your PPOR. That loan would need to be in joint names as the PPOR is in joint names.

    The funds will then be used to pay the deposit and costs for an IP which is in a single name. The loan for the remaining funds to complete the purchase can be in the name of the person on the title. The non-income producing spouce doesn't need to be on this loan.

    Assuming the funds from the equity release on the PPOR are only used for the IP, the equity loan would be deductable against the same person on the title of the IP. Confirm this with your accountant as there may be other circumstances here we're not aware of.
     
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  15. pinewood

    pinewood Well-Known Member

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    I get that because the PPOR is in joint names, a loan against the PPOR can be in joint names or one borrower and the other guarantor but how does it work where the remaining funds to complete the purchase can be in the one name would the other then need to be a guarantor on that portion of the loan? I want to understand and weigh up my options. It's so confusing...
     
  16. S0805

    S0805 Well-Known Member

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    So, name on title doesn't determine the deductibility in all cases (not sure about the cases)...then doesn't it make sense to eliminate this possibility by other spouse going in as guarantor rather than co-borrower on investment loan

    Terry, can you please shed some light on this.....it doesn't change much in what sense legal or tax. from tax deductibility point of view which is better for spouse A, B...... joint spouse loan & spouse A on title OR spouse A on title and on loan & spouse B as guarantor...
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    From a tax pov it should make no difference - less fees if not acting as guarantor though.
     
  18. S0805

    S0805 Well-Known Member

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    Thanks Terry. so when you say name on title doesn't determine the deductibility in all cases....with that understanding would be safe to go guarantor approach (agree on your points for costs though)....I mean guarantor approach sound 100% full proof than name on title approach for deductibility....
     
  19. S0805

    S0805 Well-Known Member

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    on the other hand I thought if one do joint loan & one on title approach among spouses for IP.....Is there a need for the documenting a loan agreement between spouses where the spouse who does not have their name on the title lends their half of the loan to the spouse who is on the title.
     
  20. S0805

    S0805 Well-Known Member

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