Parents on the loan - will this affect their pension entitlement?

Discussion in 'Loans & Mortgage Brokers' started by Steve G, 31st Jan, 2020.

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  1. Steve G

    Steve G New Member

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    Hello, my partner and I are looking to build duplexes. Parents as guarantors. Keep one sell one. In order to increase our borrowing capacity our broker suggested the mother in law goes on the loan. She has one year left to work then possible retirement. She is concerned that being part owner on another property may affect her pension entitlements. If anyone has any information or even where to read about that it would be greatly appreciated.
     
  2. Lindsay_W

    Lindsay_W Well-Known Member

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    Helping your family financially? Understand the risks - Legal Aid NSW
     
  3. Terry_w

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

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    How can she go on the loan if she is a non-owner?

    Generally debt would not affect the pension, but there are side issues which could
     
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  4. spludgey

    spludgey Well-Known Member

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    I'm feeling I must be wrong, given that it's your profession, but I'm fairly certain that guarantors don't go on the title at all, but they do guarantee (hence the name) for the loan or part thereof.
     
  5. Terry_w

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

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    Yes. But lenders don't generally allow for income guarantees from parents, only security guarantees. So that might mean mum will be on title.

    I had a client recently who thought they were a guarantor, but they were actually a borrower and owner of the property with the daughter.
     
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  6. Morgs

    Morgs Well-Known Member Business Member

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    Even if the lender would consider them as a servicing guarantor I would anticipate there may be challenges with showing substantial benefit... as a co-owner I anticipate challenges around foreseeable changes if she is retiring in a year.
     
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  7. Marg4000

    Marg4000 Well-Known Member

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    Don’t do it.
    Not fair to them
    Don’t worry about the pension, main concern is if things go wrong they will be bankrupted.
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Parents with benefits form Centrelink or a future expected pension entitlement can be severely impacted if they are added to title or made a trustee officeholder. Basically if they are associated with a trust the Centrelink rules can attribute 100% of trust assets and trust income to them even if this isnt an absolute entitlement.

    Then there is the issue of bankruptcy and financial exposure. Many lenders are avert to allowing older parents as a guarantor as it makes bad media to collect on their home for their kids poor business sense. Hence they will limit guarantees to co-owners, or Directors (Trustee). A 1% legal interest can expose the parents to 100% of the debt.

    Banks will generally require independent legal advice and concerns can occur when they arent fluent in english too