OO vs investment loans

Discussion in 'Loans & Mortgage Brokers' started by Rugrat, 28th Jun, 2019.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Rugrat

    Rugrat Well-Known Member

    Joined:
    16th Jul, 2015
    Posts:
    376
    Location:
    Australia
    Do you have to inform the bank if you are no longer living in a property as owner occupier and it becomes a rental?

    I would prefer to keep the interest rate we currently have, as the rate for 'investment' is significantly higher.
     
    Rugrat, 28th Jun, 2019
    #1
  2. Dan Wood

    Dan Wood Well-Known Member

    Joined:
    18th May, 2019
    Posts:
    353
    Location:
    QLD
    Dan Wood, 28th Jun, 2019
    #2
    Rugrat likes this.
  3. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,001
    Location:
    Australia wide
    Read your loan contract.
     
    Terry_w, 28th Jun, 2019
    #3
  4. Rugrat

    Rugrat Well-Known Member

    Joined:
    16th Jul, 2015
    Posts:
    376
    Location:
    Australia
    The loan was first taken out back before they had seperate interest rates for oo and ip's. So it doesn't actually mention anything at all about it. Which, I believe indicates that it probably isn't nessecary to inform them. But I thought I would come and see what others had to say on the topic. I don't want to do the wrong thing, but I also don't want to pay higher interest unnecessarily .
     
    Rugrat, 28th Jun, 2019
    #4
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Most lenders have a provision or requirement for you to convert.

    This tends not to apply of the loan is a fixed rate loan.

    While we all want to save some money on rate, our obligations may not legally allow same

    Having said that most of our clients that have gone this route have been getting away with it for most of the time, that down make it right though per se.
    Ta
    Rolf
     
    Rolf Latham, 28th Jun, 2019
    #5
    Rugrat likes this.
  6. Dan Wood

    Dan Wood Well-Known Member

    Joined:
    18th May, 2019
    Posts:
    353
    Location:
    QLD
    What are the implications? Payback missing interest?
     
    Dan Wood, 28th Jun, 2019
    #6
  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,171
    Location:
    03 9877 3000
    Most lenders have a condition that you must inform them when the use of the property changes.

    If lenders detect that the purpose of the property has changed, they will change the loan to match that purpose. I've yet to see a lender penalise a borrower if the borrower doesn't tell them.

    Technically the right advice is to tell the lender the property is an investment, but a lot of people will let the lender figure it out on their own.
     
    Last edited: 28th Jun, 2019
    Peter_Tersteeg, 28th Jun, 2019
    #7
    craigc, Dan Wood and Rugrat like this.
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Legally entitled I expect, havent yet seen such a request as yet

    ta

    rolf
     
    Rolf Latham, 28th Jun, 2019
    #8
    Dan Wood likes this.
  9. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,001
    Location:
    Australia wide
    Likely to be no requirement to tell them in that case.
     
    Terry_w, 28th Jun, 2019
    #9
    Rugrat likes this.
  10. gman65

    gman65 Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,805
    Location:
    Brisbane
    Soon as you change your postal address with the lender, this will more than likely trigger an automatic change / shift to investor rates..

    You can maybe not do this, but makes it difficult when your next credit cards / debit cards / loan statements go to your old address.

    Oh, and in Brisbane, the council will do everything they can to determine it's now a rental so they can also charge you higher rates.
     
    gman65, 28th Jun, 2019
    #10
    Rugrat likes this.
  11. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,001
    Location:
    Australia wide
    Start off with a PO box so that there is never a reason to change address
     
    Terry_w, 28th Jun, 2019
    #11
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Having said that, I recall that cba has always had a 50 pt clause in their agreements for a long time.

    ta
    rolf
     
    Rolf Latham, 29th Jun, 2019
    #12
  13. Harry30

    Harry30 Well-Known Member

    Joined:
    4th Aug, 2017
    Posts:
    792
    Location:
    Melbourne
    What happens if you do the opposite. That is, move from IP to OO.

    I was thinking, if you want to buy your first home, and you are struggling for serviceability, you could choose to buy the home as an IP and transition to OO.

    If you are renting at $300 per week, and your future property would rent for $700 per week, serviceability increases by ~$260 per week ($700 x 80% - $300) if it is an IP v OO. There may also be some additional add backs from negative gearing.

    So, once you get the loan, buy and settle, can you change the usage, advise the bank and just move in?
     
    Harry30, 29th Jun, 2019
    #13
  14. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,001
    Location:
    Australia wide
    Yes just tell the bank. Some will want proof you are living there but will reduce the rate
     
    Terry_w, 29th Jun, 2019
    #14
    Harry30 likes this.
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Some lenders will arc up about the fact that one used rental income and may want to either deny or re assess.

    CBA can be one of those within the 6 mths of settlement, they dont like it much if rental income was used to service the loan

    As an aside, while its a common strategy it can have some compliance warts, and is one area where I expect ASIC will do something

    ta

    rolf
     
    Rolf Latham, 30th Jun, 2019
    #15
    Harry30 likes this.
  16. craigc

    craigc Well-Known Member

    Joined:
    25th Jun, 2016
    Posts:
    1,598
    Location:
    Melbourne
    Australia post mail forwarding is approx $120 for 12 months ;)
     
    craigc, 1st Jul, 2019
    #16