fairest way to structure loan.

hi guys, i am purchasing a property with another person in unequal shares. total purchase amount is roughly 900k the other party only wishes to be accountable for 200k roughly 22% of the purchase, our conveyor has reflected this in our documents. i will be borrowing about 200k and rest in cash (actually borrowing 370k and keeping 170k in offset)

what is best way to go about this ? split loan into 2 accounts ? have the second party loan of 200k and then mine of 370k with 170k in offset ? does this sound right ?

also. lets say i wish to reduce the total amount of my repayments, not just the interest, is it as simple as paying down m,y 370k portion to 200k and then ill only be paying the monthly amount as if i only borrowed 200k ?

 

Are you going to be giving a mortgage over the property to a lender? If so, the loan contracts will state you are both on the hook for each other's portions, this is because a bank is unable to sell just 22% of a house in the case one party defaults.

Have you discussed the pro and cons of buying a property with an unrelated person?

There are a few options:
1. You can take out a loan 'together' as co-borrowers
2. Each party takes out their own loan (with the same lender) and then provides a guarantee for the other parties loan. This way you have separate accounts, online banking etc.
3. Borrow against an asset held in your name and leave the co-owned property unencumbered

It would depend if you are on interest only or principal and interest repayments. With P&I the repayments are set, with most lenders if you have offset some of the interest that month, the offset interest will become available in a redraw account.

With IO repayment the payment will reduce the more you have in the offset account.

 

hi thankyou for the detailed answer.

yes i am aware of the actual risks involved and understand the bank cant sell the 22% of property, it is just something we noted down with the conveyor as i will be putting in 500k of my own cash into this purchase, with us both borrowing 200k each to make up the 400k left needed to purchase. i understand from the banks view we are both liable for the full amount. its just an agreement we have in place incase something arises in the future and we sell the house, makes it a bit clearer who is entitled to what.

i think we are going to try to split the loan like in your second example, seperate internet banking etc.. obviously the total liability still falls on us both.

it is an P&I loan. i guess i will need to actually paydown the loan with the 170k in offset so its no longer accessible and actually paid off of the loan to reduce the total repayments yeh ? once i have reduced the loan how do i get the bank to put us on the new reduced payments ?

 

Hope you are using a lawyer for the conveyance as this requires legal advice.

Fairest way perhaps would be to each borrow the same amount from the lender with a mortagege over the property. You can each contribute additional funds, up to your limits, by cash or borrowing against other property.
Also consider deductibility of interest

 

You can pay the $170k into redraw then ask the lender to reduce the loan limit to $200k (the broker would do this for you), this would reduce the repayments, but you would lose the access to the $170k.

 

Yuck. Seriously. Every part of this. Tax. Liability for loan. Record keeping. You putting 500k cash in.

There has to be a better way. You buy it and rent it to them? Who is the other person? Family? Who is living in it? Are they paying rent?

If you are using a conveyancer (instead of the belt in your post), you are not aware of the risks.

 

thankyou all, its with my long term spouse, we arnt married so we figured it would be best to keep it as if we were just investing together. this will be our ppor. i had the money from a previous home i sold. this is us moving forward and getting a home to start a family.

 

thankyou, see my above reply for further information. we are using a conveyor, is that what you mean ?

 

thankyou, its with my long term partner, we been together 8 years and want to start a family, needed a bigger place.

 

Since australia has defacto laws you are making this wayyyyy too complicated.

Ppor makes for a whole new set of questions. Will you upgrade ppor in the future and rent this out? If you might, taking a low lvr loan might be bad for you.

 

thanks for your honest opinion. it is with my long term partner, we wanted a bigger house to start a family in.

can you elaborate on what you mean by belt ? and yes we are using a conveyancer

 

no we have no plans or desire to move from this place, ticks all boxes for us.

 

Have you dreamed about this exact house in this exact suburb since you were 5?

 

how would you structure it ?

 

For my own, 80 lvr with offset. Not advice thats just what i did.

 

um dont think i have dreamt of any house in any suburb at any point of my life.

 

So you think you will never want to live in another property other than this one because......?

 

thanks for the insights