Substitution of security example

Discussion in 'The Buying & Selling Process' started by Keenonrealestate, 21st Mar, 2021.

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  1. Keenonrealestate

    Keenonrealestate New Member

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    Hi all,
    I am looking at a substitution of security and I am wondering if anyone can tell me how the seller of the new property you’re thinking of purchasing gets paid??
    Scenario:
    Current property sale price: 370000
    Current mortgage 188000
    New property purchase price 330000
    Costs and fees (SD, commission, solicitors etc) 15000.
    Do you pay the seller the difference of the purchase price and mortgage(ie 142000) and the bank pays the seller the 188000? Or does the 188000 also come out of the 370000 sale price for the bank to carry the loan over to the new property? Apologies in advance if this is confusing, however everyone else I’ve spoken to has confused me more. I am hoping for a straight forward plain English answer as I am no professional in this.
    Cheers
     
  2. Terry_w

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

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    the value of your new security is less than the current security so the loan may need to be reduced.

    You pay the seller from the proceeds of your sale. The bank wouldn't pay anything if you are not borrowing.
     
  3. Keenonrealestate

    Keenonrealestate New Member

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    Great thank you for clarifying this Terry_W
     
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  4. Lacrim

    Lacrim Well-Known Member

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    Just latching on to this thread. If you :
    1. paid off loan A with Bank X via selling the property/security
    2. can you port over the loan of an existing IP from another bank ( ie refi) into loan A with Bank X?
    If so, does the term have to be identical? Is it possible for the term to be 30 years when you bring the other loan over (without serviceability checks etc)?
     
  5. Terry_w

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

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    You would need to substitute the security property before selling, or at settlement.

    substituting security is not changing the loans so it wouldn't involve a refinance - that is a refinance, 2 separate things.
     
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  6. EK01

    EK01 Well-Known Member

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    We did one earlier this year with Westpac and it was very straightforward; much easier than going through the re-finance process.

    If we had one issue, it was that some RE agents were unaware of this option and so it was not always easy convincing them that this was not a normal 'subject to finance' offer, even though the bank strongly advised (and we complied with) inserting the clause into our contract(s).
     
  7. EK01

    EK01 Well-Known Member

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    I should add we were competing in a market where many, if not most, of the offers on properties we were looking at, were cash so inserting a 'subject to finance' clause often put us behind the 8 ball in the eyes of sellers agents.