Guarantor or Co-Borrower?

Discussion in 'Property Finance' started by slo, 17th Nov, 2018.

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  1. slo

    slo Member

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    I have an investment property and planning to refinance the loan with another bank. the property is 100% on my name.
    My wife will be guarantor on the loan, similar to existing loan.
    The broker told me that the bank(CBA) no longer do servicing guarantors and she has to be one of the applicant on the loan.
    Till now I have refinanced this property 3-4 times and my wife was never an applicant on the loan.

    Is this correct? I am bit skeptical about the structure.
     
  2. thatbum

    thatbum Well-Known Member

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    Does it make much difference anyway?
     
  3. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    What do you mean by 'correct'?

    It is probably due to servicing reasons so her income is needed to qualify.
     
  4. slo

    slo Member

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    And I thought she being a servicing guarantor will be enough. That is how i have it with the current loan. was not sure if banks have changed any regulations recently.

    I dont know much about having a co-borrower on my investment loan has any impact on tax, gearing, borrowing etc. as I never had to do this before.
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It won't make any difference - everything is deductible to the owners as per the title, not as per the loan.
     
  6. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    How do you know?
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Some tax advisers insist on the guarantee stricture due to some obtuse case which I can't remember, which had deduction disallowed.

    I haven't ever seen the need for same except in some cases of Hynrid discretionary trusts.

    I'm no tax guy, what does your tax persy say and why ?

    Ta

    Rolf
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    From reading all your tax tips :)
     
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  9. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Based on the info given I wouldn't like to give a definitive answer. Probably the legal owner would claim the interest, but there could be exceptions.
     
  10. Bruce Lee

    Bruce Lee Member

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    If the property is solely in your name, try to avoid having your wife as a loan applicant.

    I read an article that explains the importance of loan structuring for a couple.

    In short, the article states that the names on the loan should match the property's ownership. This makes it impossible for the ATO to deny you the tax deductions on the loan.

    See attached article for more in-depth analysis.
     

    Attached Files:

  11. Scott No Mates

    Scott No Mates Well-Known Member

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    You must have missed the royal commission, APRA and everything in between.
     
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  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    In the end .................... if the spouse's income is required,............... it will be needed either a co borrower or a guarantor.

    If have even had ass et protection lawyers come back to us that a guarantor is just as potentially liable if they get they get taken out as a co borrower as they are deemed to have a beneficial interest in an asset as a guarantor - because in a non commercial /company arrangement, a lender will only accept a servicing guarantee from someone that has a benefit form the transaction.

    Sometimes, or perhaps mostly, many of us focus on what could be in a negative sense, rather than what could be in a positive sense.

    There is even a new Blood Group for this Genre


    ta
    rolf
     
  13. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Being a guarantor in itself doesn't give an equitable interest but paying someone else's loan would.
    For asset protection for the non owners being guarantor rather than a borrower would be preferable.
     
  14. slo

    slo Member

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    That is what I was trying to find on the ATO website but it is not very clear.

    Another thing is why did CBA changed the rule? why CBA does not allow servicing guarantee now? is it just based on my circumstance or in general they stopped this? What about other banks? have they changed the rule as well?

    One of the document that we have to fill has few items that either or both together will able to do,
    Vary the loan contract, redraw the money from loan or cancel once authority etc.
     
  15. S0805

    S0805 Well-Known Member

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    what is your broker saying....it sounds like change in policy at CBA end. From serviceability point of view, I would have thought if your spouse qualify as co-borrower than should be as guarantor as well...
     
  16. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Technically the CBA stopped allowing servicing guarantees around 2011, other than to trust structures. They did make exceptions for spouses as well, but that was an 'exception'.

    With the Royal Commission and APRA, the CBA is very reluctant to make exceptions at all, even when they make perfect sense. If something goes wrong on the loan and it's investigated, showing an exception was made is going to be a big red flag for the regulators at the moment.

    There are lenders that will allow spousal guarantees but these are rarely used because in virtually all cases a co-borrower does the same job and is easier and cheaper.
     
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  17. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Like what exceptions? Owner gets the rent, owner gets the interest for loan used to buy the income producing asset. Like the set up the OP is describing.
     
  18. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    There could be a trust relationship. In that case the beneficiary would claim the interest - if a bare trust. Working on two now.
     
  19. slo

    slo Member

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    Just decided to cancel the refinancing with CBA. will call my current lender and see if they can price match.
     
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  20. albanga

    albanga Well-Known Member

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    Another paycut in the broker industry ;)
    Would be interesting to see how these play out in fee for service.

    “You never told me your recommendation cannot do service guarantee”

    “Well you never told me that was a specific requirement”

    “Well too bad I’m not paying that fee.....”
    Legal battle commences