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Releasing security.....what implications does that have?

Discussion in 'Property Finance' started by mmgg, 30th Sep, 2016.

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  1. mmgg

    mmgg Member

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    Hi everyone,

    I have a no. of houses that are secured against my one big loan. Therefore I don't actually own any house. I want to own a house and that is the long term aim which I will retire on. I am able to release one of the houses keeping within the banks 80% and I want to do that. But what implications does it have especially tax wise? I still get to claim deductions but does my income go up and therefore I'm tax in the higher bracket, perhaps. At the moment I get all my return back each year so that is not a problem. In fact I am too heavily negative geared and lose out each year. What do you think? It is a no brainer?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    There are no implications tax wise to releasing the security - the only change is literally that the bank has less security for their loan.

    Definitely do it - it sounds like a cross collateralised mess. One big loan is terrible for tax purposes, particularly if some of the loan is for an owner occupied loan. I would suggest restructuring the whole thing if possible.

    Are you paying P&I, or is the whole thing IO? Is there any personal, non-deductible debt bundled in the big loan?
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Try to uncross the mess at the same time.

    The closer you get to retirement ( assuming its age related) the tougher this will be

    ta
    rolf
     
  4. mmgg

    mmgg Member

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    Hi Jess, it shouldn't be seen as a cross collateralised mess. If anything it's simple one loan with many houses paying it off. The whole thing is PandI. If I did restructure I would need to know what options are available and what suits me and my situation best. That's where it gets tricky. If I do release one of the houses does my taxable income go up? Therefore I am paying more in tax each year? That is some of my thinking. Is that a good or bad thing?

    Hi Rolf, I was only able to have the big loan with the many houses securing it. I used to have individual loans with different banks and different rates and one security for each. That was a nightmare for so many reasons. Now its easy one mortgage, one rate, many incomes.
    Not age related I'm 42. What do you think?

    Cheers
    Matt
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  6. Indifference

    Indifference Well-Known Member

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    I'm with @Jess Peletier & @Rolf Latham and I'm not a broker.....

    I've had cross-collateralisation in the past (done with all the best intentions at the time) but what happens if you ever want/need to sell just one.... it's a mess. Please trust me. Been there & never again. Additionally, you have everything on P&I so if you are in an all or nothing situation as you can't just change one to IO or vice versa.

    Finally @Terry_w has the inside run on lack of tax implications.... it's the purpose of the loan & if a PPOR is mixed in with that cross-collateralized loan, then your accountant will be feeling the pain.
     
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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I think you a swapping a bit of convenience for a major major headache in the not too distant future.
    Search the forum for threads on x-Coll and after you've read them pick up the phone to one of the brokers here - right now you're in a situation where you don't know what you don't know. Lucky this is easy fixed :)

    As I said before, releasing the security doesn't change the Tax side of things at all, unless you restructure the loans at the same time, which I highly recommend you get some specific advice on - the brokers here all know how to structure the loans to maintain deductibility.

    No matter what you do your taxable income will not go up by restructuring the loan.
     
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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Yep and all the other properties connected to the property you are not selling will need to be revalued before the security you want to sell will be released. This is usually realised and acted upon a few days before settlelemt causing delays and interest penalties. It may even cause a major roadblocks if your LVRs are over 80% and you dont have the cash on hand or servicing ability to adjust the loans to the banks requirements.

    Call a broker from here and get it cleaned up and understand why.

    It could do if the property being sold / released is 5k in the red per year for example.
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I was assuming it was not being sold- assuming kept, it would not make a difference to taxable if it was securing or not. If there was a loan used to purchase it could be secured by the other property if LVR was low enough.
     
    Last edited: 2nd Oct, 2016
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  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    The below isnt in response to the OP per se, more to provide a balance to others coming in to view this thread once it has long died.

    Xcoll can have benefits and valid reasons, in a few scenarios, and I dont know your reasons or needs.

    Convenience is not a valid reason in my book.

    many reasons why my life experience has taught me that xcoll can have major implications, and there are many more

    To cross or not

    came across another weeny one today .................. changing IP to PPOR loan with cba

    If the IHL being transferred has...

    Eligible for transfer process
    (Yes/No)


    One Security Property now Owner Occupied Yes

    Two Security Properties now both Owner Occupied Yes

    Two Security Properties one now Owner Occupied and one now for Investment
    Yes

    Three or more Security Properties regardless of type No - Complete Refinance application for assessment


    ta
    rolf
     
  11. mmgg

    mmgg Member

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    Hi everyone and thanks for your suggestions.

    I need to make it clear that I am not selling anything. I am requesting the bank to release the security of one of my houses so that I finally own it. I am trying to find out about the implications this has. Here is the scenario to make it clearer. P&I loan is $160,000 for 3 houses. Now I am going to ask the bank to release one of the houses. Therefore it is in my name I outright own it. Then the P&I loan of $160,000 is still LVR of 80% and is against 2 houses. Why would I do this or not?
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if the lvr of the remaining houses stacks up to the loans remaining, there is no real implication that I cant think of - but we dont know your goals

    ta
    rolf
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There are legal implications potentially.

    It can have a different effect on your estate on death.
    Asset protection too - having a mortgage will have minor asset protection advantages. Anyone doing a search will see the property encumbered.

    If you default on the loans the bank cannot directly take the property if it is not being used as security - but they will get after a short delay.

    btw - you own the property even if there is a mortgage on it. (different under old title system).
     
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  14. mmgg

    mmgg Member

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    Hi Rolf and Terry W,

    My goals were stated in the original post to own houses outright. SS in her books encourages buying houses and then at the end of your investing selling houses, paying down debt and then retiring on the rental income. Owning houses outright.
    Everyone here seems to be so worried about not making mortgage repayments when if you just buy within your means then nothing to worry about.
    Regards
     
  15. hobo

    hobo Well-Known Member

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    @mmgg Actually I don't see anyone worried about mortgage repayments?? But I do see you completely missing the message the kind folk above are trying to tell you...
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Does it really changes t hi ings if you had 2 houses worth $500k each with a $200k loan each securwd by each v 2 $500k houses with a $400k loan on one and the other unencumbered?
     
  17. mmgg

    mmgg Member

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    I just feel with language like: its a mess, feeling the pain, tougher, major roadblocks etc that is a bit in your face. Actually I had four different loans against four different houses and all individually secured. I didn't know what was going on. For me that is a mess. Don't get me wrong though my wife and I are appreciative of the comments. Perhaps ignorance is bliss. When we talk about missing the message....I'm still waiting for the scenario that hurts me. I don't need/want to sell. While I acknowledge what Jan S says in her books, buy many houses (I assume she means a lot more than what I've got) I am done with that. So where will this major headache come from in the not too distant future? I have read the, 'To cross or not' and non of it is applicable to me. Provides some interesting thoughts however. If I did continue buying IP then I can see the where your all coming from. But for me IP mean more plumbers, sparkies and shovelling money into other's pockets. I would prefer sitting at home with the kids jumping all over me and watching Bathurst 1000. Once again thanks for everyone's suggestions.
     
    Last edited: 6th Oct, 2016
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    When you die do you intend to leave different properties to different people?

    I am not sure how your comments relate to the topic - which is about releasing security.
     
  19. Perthguy

    Perthguy Well-Known Member

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    For me, one loan for each property is wonderful, not a mess. If you want to know mess, have a look at this structure that I had years ago. Property 1, Property 2, Property 3.

    Loan 1 was secured by Property 1 to purchase Property 1.
    Loan 2 was secured by Property 1 to purchase Property 3.
    Loan 3 was secured by Property 2 to purchase Property 2.
    Loan 4 was secured by Property 3 to purchase Property 3.
    Loan 5 was secured by Property 2 to purchase Property 3.

    That's a mess! I found it very difficult to figure out what was going on. It was wonderful when I refinanced at the time I purchased another property and had four different loans against four different houses, all individually secured. I could finally track what was going on!

    I would hate to have 1 loan covering all of the properties because then the interest has to be divided up and allocated to each property.

    Your income won't increase just because you release a security property.

    In your situation, I can't see any reason why you would not release the property. It would be an advantage to do this now because the fees to do this seem to go up every year.
     
  20. albanga

    albanga Well-Known Member

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    Your getting amazing FREE advice by industry EXPERTS and you don't like what they have to say? I'm confused why you even started this thread if you don't want to take onboard what is being said.

    Xcoll is nothing but short sightless for in your case convenience. I can give you 1000 examples of this translated to everyday life. Why wear protective gear onsite? "I've never hurt myself, why wear safety glasses, it's more convenient not to". We can all get through life doing what's the most convenient but doesn't mean it's the right thing to do. Bombing down the freeway at 160km is much more convenient for me getting to work but chances are I'll soon get a fine....or kill someone.
     
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