Who is the borrower for a mortgage for investment property in family trust

Discussion in 'Loans & Mortgage Brokers' started by Haiyan, 31st Oct, 2020.

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  1. Haiyan

    Haiyan Member

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    We are going to get a mortgage to buy a property in our family trust. The trust has a corporate trustee whose directors are my husband and myself. My mortgage broker currently has put down the family trust's name as the borrower in the application form, reasoning in this way the loan won't incur business interest rate which is supposed to be much higher. However this seems to be different from info from some friends. We know there are a lot of seasoned investors here so just checking if this is OK. Should the loan be under the corporate trustee name (I.e. *** Pty Ltd) or the family trust's name?

    Many thanks
     
  2. Terry_w

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

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    You are conflating borrowing and mortgaging. Also mistaking a trust for a legal entity.

    The company will be the borrower, as trustee. It will also be the mortgagor. A trust itself can't borrow. How do you put a trust down on the app form as a borrower?
     
  3. Haiyan

    Haiyan Member

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    Thanks Terry_w.
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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  5. Haiyan

    Haiyan Member

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    Thanks Rolf. That's a really good suggestion.
     
  6. Trainee

    Trainee Well-Known Member

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    Thing is, this is something your broker should know. It shouldnt need to be a suggestion from another broker.
     
    Curious2019 likes this.
  7. Vita22

    Vita22 New Member

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    If only a Pty Ltd can borrow, how it is that one of the benefits of owning a trust includes Capital Gains Tax 50% discount. Companies do not get this.
     
  8. Terry_w

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

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    For tax purposes a trust is considered a tax entity. but at law it isn't.
    A trust cannot mortgage - it doesn't own the property, the trustee does so the trustee will have to mortgage trust property.

    I have yet to meet a broker that understands trusts - but they generally don't have to. All a broker needs to know is that the trustee is borrowing, in its capacity as trustee and the trustee will be giving a mortgage over trust property.

    The loan documents will reflect that the trustee is acting as trustee and has the right to be indemnified out of the assets it holds as trustee - togehter with the trust deed which will need to give the trustee the power to borrow, mortgage and be indemnified.