Will I have Serviceability issues with IO period ending

Discussion in 'Loans & Mortgage Brokers' started by menty, 1st Feb, 2020.

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  1. menty

    menty Well-Known Member

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    I currently have 3 loans, 2 of which are IO and the period will expire this year.
    My income for the 2017-2018FY was 80K (trust distribution) and taxable income 58K after deductions (mainly rental deductions and depreciation). I have not done the 2018-2019FY tax return yet. I run a small business with a structure as a family trust so I can increase my 2018-2019FY taxable income if I really need to. The family trust pulls in about 130K after deductions.

    The 3 loans are with 3 different banks
    Loan 1: PPOR. loan amount$744K. CBA IO VAR 3.79%. 25 years left on loan term. IO expires June 2020. Secured with a property that would probably be valued at 800-900K. May turn into an IP again in the future, 40-50% chance.
    Loan 2 : IP 1. loan amount $312K. NAB IO Fixed 4.19% IO expires May 2020. Secured property value would be about $420K. Rental income $350pw
    Loan 3: IP2. Loan amount $390K. WBC IO FIxed 3.89% till May 2021. Secured property value would be about 650K. Rental income $695pw

    Credit card limits : $4000.

    1. Would I be able to refinance Loan 1 to another lender. I know its hard to do IO VAR, but I could consider P&I VAR if the rate is low enough.
    2. Again, what do I do for IP2?
    3. I cant touch IP3 till May 2021. Ideally Id like to release some equity if possible.

    Would I be able to refinance without increasing the income from the trust distribution to me? If I have to increase it, how much would I need to increase it to?
     
  2. Morgs

    Morgs Well-Known Member Business Member

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    You're going to need to get a full assessment done by a banker / broker - there are too many variables like dependents, living costs, add-backs, etc.

    On your questions - some lenders will accept OO IO with the right justification (CBA are unlikely though). Servicing will define if you can refinance or not, otherwise you'll need to try and negotiate with your existing lender. IO extension is extremely unlikely without servicing.

    I would suggest you also do the numbers on break cost vs. what you'll recoup in lower interest rates. If servicing is tight these higher fixed rates will penalize you in servicing as the assessment rates will likely be well above the lender floor rates.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    You generally can't increase servicing income by causing the trust to distribute more income to yourself
     
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  4. JasonC

    JasonC Well-Known Member

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    If the trustee was previously distributing income to a another beneficiary of the trust (eg. a brother, sister etc on a lower tax bracket) then in the last financial year distributed it to the OP - wouldn’t this then increase the OP’s serviceability?

    Jason
     
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    It depends.
    Some banks will take the trust income into account if the controller is borrowing. Other lenders want 2 year tax returns so a sudden payment increase may not help
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    if the net profit of the trust is 130 k,. and you are the sole director of the trustee, you can use the full 130 k in your name for servicing under some circumstances, even if in previous years the income went to other family members to reduce tax due to income splitting

    Pls seek specific credit structuring advice

    ta
    rolf
     
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  7. menty

    menty Well-Known Member

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    This is what Im after. I assume not all banks look at the trust income if I am the sole director ? Iv tried to run this by banks/ my broker in the past and Iv always gotten that it cannot be done.
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    As a broker I would rarely say it cant be done.

    I would normally suggest I cant get it done

    Yours sounds quite hard, but certainly NOT im possible

    Seek some credit advice from a broker on PC, and I suspect it is doable - but as always - insufficient data.

    ta

    rolf
     
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  9. menty

    menty Well-Known Member

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    Iv been told this is only possible if I increase the distributions to me this year to myself. ANZs policy does work for a family trust but I would have to increase the distribution to myself this year (ie I cant keep income splitting 80K/50K). ANZ will only take one years tax return
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    I don't know ANZ's policy on this off the top of my head, but another major lender wouldn't require this.