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Split loan between members of a couple

Discussion in 'Property Finance' started by legallyblonde, 10th Oct, 2015.

  1. legallyblonde

    legallyblonde Well-Known Member

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    A friend of mine recently bought a PPOR with her new boyfriend.... Apparently they have structured the loan is such a way that they are only liable for half the loan each... E.g 500k house.... 20% deposit... then they each have a separate mortgage with the same lender for 200k each. Whilst I am familiar with the concept of split loans I had never heard of splitting a loan between two people like that.

    My question is... Is this possible? I ask in the context that I know the usual situation is both my friend and her BF's borrowing power would be stuffed up because only half of the asset is theirs but they are liable for the full debt? Is this a way around that?

    Thanks in advance for your thoughts!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Depends on the situation. All owners will need to guarantee the loan or be on the loan.

    So if only one is legal owner of the property it would be possible. If both are legal owners it would not be possible. But It would be possible for one to be on the loan if the other owner gives a guarantee.

    Legally it is possible for a tenant in common to mortgage their share of the property, but there are no lenders willing to lend on this basis - that I have ever seen.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    CBA had a loan that does this, however bc both parties are guarantor for the other party of the loan it still stuffs up their future borrowing.
     
  4. Nemo

    Nemo Well-Known Member

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    @Corey Batt organised something like this for me through the commonwealth bank earlier this year.

    We had to be guarantors on each other's loans.

    I liked the way it was setup.
     
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  5. herenow

    herenow Well-Known Member

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    What's the attraction of a loan set up this way for partners in a relationship?
     
  6. Nemo

    Nemo Well-Known Member

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    For me it was the ability to control my part of the loan.

    I had very different investment ideas to my husband... Having a joint loan limited me severely in investing on my own - joint and severally liable.

    While the separate loans didn't eliminate this, it allowed me to put more money towards eliminating the joint debt, but paying it off my portion rather than a joint debt.
     
  7. D.T.

    D.T. Adelaide Property Manager Business Member

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    If one partner wants to invest and the other doesn't, they can use their portion to go do so.
     
  8. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    That's what I need!
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    They can also pay down their loan independantly of the other - different tax issues.
     
  10. Nemo

    Nemo Well-Known Member

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    Gockie, it doesn't help with the joint and severally liable.

    My husband was very anti property and wouldn't let me access equity in our joint ppor - this didn't help with that either as he still needed to be guarantor.

    It allowed me to pay down my portion of non- deductible debt at a pace that suited me, potentially increasing my serviceability down the track.

    Our finances were very separate and it got to the point were there was resentment over one partner paying off joint debt and the other wanting to do something else with their money.

    This way we each had our own debt and it was up to us how fast we paid it off.
     
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  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sounds like it was a good solution. I guess another benefit is that you can then access redraw on your loan without his approval or involvement and then use that to invest yourself.
     
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  12. legallyblonde

    legallyblonde Well-Known Member

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    My friend was looking at buying a house in the near future, then along came a new man... Then they jumped in and bought a house very earlier in their relationship.. Hence the 50:50 separate mortgages. I am really glad they were wise to keep the finances reasonably separate given how new the relationship was.

    QUESTION: If there is a 20% why would the need to be liable for the other half? I assume it is to protect the bank in case ONE person defaults, so they can still take the asset?
     
  13. legallyblonde

    legallyblonde Well-Known Member

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    Bugger.. Protecting borrowing power was my main concern with the structure....
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Two reasons:
    Banks wouldn't like taking possession of half of the property.
    And the banks want as much protection that they can get.
     
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  16. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Well, my share of the ppor is worth about 500k but we have a joint loan. That loan is only 90k. So it would have been nice to have the option to pay it down at my pace...
     
  17. legallyblonde

    legallyblonde Well-Known Member

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    Oh that is lame Gockie!! So you cannot use any of the equity without the other halves permission?
     
  18. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Correct! And... forget asking for permission... he flat out will never let me...
     
  19. D.T.

    D.T. Adelaide Property Manager Business Member

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    I'd rather be single than have a partner who's not on the same page financially
     
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  20. Nemo

    Nemo Well-Known Member

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    I've had the same problem for the last 11 years. We've recently gone our separate ways.
     
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