Finance implications of moving out of PPOR

Discussion in 'Loans & Mortgage Brokers' started by fleathedog, 27th Jun, 2018.

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  1. fleathedog

    fleathedog Well-Known Member

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    Hello all,

    I bought a house in Brisbane 18 months ago, which I plan to move out of and rent out I'm the next few months. I currently have a P&I loan with an LVR of roughly 70% and the interest rate is 3.9% (or thereabouts). Obviously, I applied for this as an OO loan, but once I move out, it will effectively become an investment loan.

    So, I need to know if I'm required to tell the lender (ING) about this. I did skim through the contract, but couldn't find anything that specifically addressed this. And otherwise, whether they would jack up the interest rate because it's not an OO loan anymore.

    Thanks
     
  2. albanga

    albanga Well-Known Member

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    The answer is yes technically you neeed to inform the lender of the change. Whether or not anyone actually does is another conversation. If you didn’t inform the lender and they later found out (say you applied for a new loan with them) then your not going to get in trouble.

    I would say vast majority of people wouldn’t even know they need to tell the bank and the others that do know probably don’t unless they have to.
     
  3. Terry_w

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

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    I know CBA have terms in their loan contracts about notifying them if the property ceases to be a main residence. Don't know about ING. If you do notify them they will put the rate up.

    Just because you may be contractually bound to notify them doesn't mean you 'should'.
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I have clients with loans at ING, I've seen this quite recently.

    If you inform ING they will increase the interest rate, probably by about half a percent.

    If you don't inform them, for a period of time you'll likely be fine. Eventually though they will probably figure it out themselves. At that point you'll receive a letter saying that the property is an investment and they're increasing the interest rate. This will be effective from the next payment.

    The client this recently occurred to didn't receive any penalties, they didn't have to pay any back interest. As best I can determine there were no consequences other than future interest rates would be higher.
     
    Terry_w likes this.
  5. fleathedog

    fleathedog Well-Known Member

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    Awesome. Thanks for the responses. I think I know what I'll be doing then :)
     
    Corey Batt likes this.
  6. Corey Batt

    Corey Batt Well-Known Member

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    With any lenders that I know of who are adjusting borrowers loan type actively I have not seen or heard of any penalties being applied if you leave it up to them to work out - in reality the majority are not even actively tracking the status at this time and relying on the original loan use. I think we'll see this change more with time with lenders monitoring mailing addresses etc and adjusting loans accordingly once they have enough proof of the up to date use of each property.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Not specifically the same thing, but somewhat similar in this story.

    Earlier this year Westpac classified a new loan application as a 'staff loan'. In this case the benefit to the client is that they wouldn't have to pay the $395 annual fee. The client has never worked for Westpac, they don't qualify for this package at all. It wasn't something myself or the client did, someone at Westpac simply made a dumb mistake somewhere.

    It was picked up in the branch when he was signing the loan documents. The branch person advised him that the loan shouldn't be classified in this way and it would be picked up.

    I quietly asked a few questions. It turns out that on an annual basis Westpac cross references all staff loans with their employee roster. If you've got a loan with Westpac and you quit, they won't pick up the discrepancy immediately but they will within 12 months.

    The point is I've recently seen quite a few lenders contact borrowers and reclassify loans as investment (but no penalties). This is something they're becoming more proactive about.

    Good news for that client though. Westpac reclassified the loan as a normal one, but they did agree that they made the mistake and we did try to correct it (not deceive them). Westpac decided to waive the clients $395 package fee for life. :)
     
    albanga likes this.
  8. albanga

    albanga Well-Known Member

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    IMO the banks are never going to try and chase someone to make back payment of interest. It simply doesn’t make any commercial sense to do so. Think about the sheer amount of time it would take to do this. Trying to establish exactly when someone changes purpose in itself could be an impossible task as their are countless variations.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    And they're often talking about a 0.2% increase in rates. On a $500k loan, that's $1000 per year for them to recover. From a business case perspective, that's worth about one day's work for one person.