Family trust mortgage

Hi,

I am have a family trust with multiple properties in it. None of the properties have mortgages on them, they were funded by my PPOR mortgage. My ability to borrow against my PPOR is now maxed out. So I would like to set up mortgages on the properties in the trust and pay down my PPOR mortgage, so that I can buy some more properties. Would the big 4 be the place to start? As I have been knocked back from a smaller bank once before as they didn’t seem to grasp the idea of a family trust.
Is there anything in particular I should look out for, when transitioning?

 

Your wording is a bit off.

Did you lend to the trustee for it to buy these properties? is there a written loan agreement and have terms of the agreement been complied with?

The issue is not that lenders don't grasp the idea of a trust - that would be strange. But that they are probably considering it a cash out and for use by a different entity which they won't like

 

Yes to the first question, no to the second but I could do one if need be.

on the third bit it’s going to be put into my PPOR mortgage, but can see what your saying.

 

Im currently working with a couple to get cash out of their unencumbered property to pay back their parents who stepped in when the kids finance fell through. Without a loan agreement most lenders won't touch it. So i think that's Terry's point on getting your cash out (sorry if it isn't Terry). With my scenario a paper trail was enough for one lender to take it on, so maybe you have a shot with a couple.

 

By borrowing exclusively against your home you've kind of given yourself all the disadvantages of investing through a trust, but waived off all the potential advantages - at least from a lending strategy perspective (legal, tax, asset protection are a different matter).

You may be able to significantly improve your future serviceability by refinancing the loans so they're secured against the investment properties in the trust, rather than being secured by your own home. Done correctly, with the right lenders, this could improve your future borrowing power significantly.

 

Cheers, for the info all. I could definitely put something on paper if that is what would you guys think would assist in refinancing. Would banks outside the big 4 be interested in this?

 

Most lenders are ok with lending to trusts to pay out related party loans, but your situation might pose problems

Can the trust demonstrate repayments to you?

 

Well not really, there are distributions each financial year but the loan to me has kept going up to this point as it has been buying more properties and shares.

 

Sounds like you haven't considered the legal consequences or the tax. If ato audits they could deny deductions. Will be hard to finance to pay you back I think

 

Fair enough your entitled to your opinion but my wife is a CA also we have an independent accountant who have been involved every step of the way so I doubt I will have any problems with the ATO.

 

Whose advice did u take by choosing to finance trust properties with personal assets?

 

Appreciate you guys are really trying to figure out my exact details and situation, but I really think that’s not possible. I’m really looking for some ideas or pitfalls or just things I should know for getting a mortgage through a trust so that when I go to lenders and my accountant I have as much information as possible beforehand. I don’t know if there’s another thread where this has been discussed and there are tips but I couldn’t find one.

 

I have gotten private rulings along these lines and have a bit of experience in this area.

If X borrows and Y uses the money the interest is not deductible because it was not incured by Y. X incurs it and it doesn't relate to their income. What X would need to do is to enter into an arms length written contract with Y on commercial terms.

You are conflating a mortgage with a loan also - 2 different things.

What you appear to want to do is for the trustee to borrow and use the trust property to give a mortgage as security to the lender. That should be fine if the trust will use the borrowed money to buy more property. But if the trustee wants to borrow and 'give' you the money or lend it to you that will not be fine as lenders won't like to lend to someone for them to give it away. it makes it more difficult to recover.