Loan application : existing mortgage but NO personal guarentee

[WGN ex-property manager]

Question for Brokers:

When applying for a new loan for an IP, do you need to tell the banks about an existing mortgage on a family home (in a trust) which the applicant DOES pay for, but IS NOT a personal guarantor for.

Or can you just call it "rent" in the income and expenses part of the application.

NB- if presenting the cost to live in the family house as rent, the family house would not be listed as an asset and no equity would be claimed because of it.

Cheers

Robin

[mortgage broker]

I would say yeah, if you are trustee then in effect the existing debt would be your debt (as a trustee). Unless the trust deed limited your liability, as a professional trustee.

I am not a lawyer though so not a 100%, any lawyers in here?

[WGN ex-property manager]

Trust deed specifically limits the Trustees liability to the assets of the Trust only.

So all trustees are isolated from any personal assets becoming liable, in the way that "Professional Trustees" are.

[roseneath_rat]

If the trust relies solely on you for the income to pay the bills, then it would be dishonest not to include it as it otherwise skews the affordability of borrowings.

[brokerman]

If the trust relies solely on you for the income to pay the bills, then it would be dishonest not to include it as it otherwise skews the affordability of borrowings.

Agreed, it is a liability and should be disclosed, if he's paying it then it will show on Bank statements anyway

[Winston001]

Generally banks want to know all of your real property assets - and obligations. However you are entitled to privacy and trust property is not yours personally: ergo you needn't disclose it.

However you say you do have an equitable obligation to pay the mortgage so that's a liability you should disclose.

[WGN ex-property manager]

Generally banks want to know all of your real property assets - and obligations. However you are entitled to privacy and trust property is not yours personally: ergo you needn't disclose it.

However you say you do have an equitable obligation to pay the mortgage so that's a liability you should disclose.

Much like rent then?

Disclosing the weekly expense is fine, but having the banks then analyse it at 2 yr rates + 2% as a "what if the worst happened" would be ridiculous. This mortgage also cannot affect any other IP mortgages as the liability is strictly limited to the assets of the trust, so having the mortgage contribute to the "LVR" of the overall position is also misleading.

It's not the trustees mortgage. They simply pay a weekly amount to live there. If they stop paying then they have to leave (and the trust would loose the house, but the trustees other assets cannot be touched).

So I still can't see why the position should be disclosed to a bank as anything other than renting a home.

[roseneath_rat]

Very relevant to look at the funding with the possibility of increased interest rates. We are at the lowest part of the interest rate cycle, and it is a high probability that in less than 2 years time that rates will be substantially higher. Rewind a few short years & remember floating rates at 10%? Will rents be 50% higher in 2 years to cover the difference?

I also disagree with the "right to privacy" when asking for funding. The lender is entitled to know the relevant facts around your financial position when assessing an application. The house & mortgage is still part of your after all empire isn't it?

[WGN ex-property manager]

"Mortgage" is fixed at 3% for the 25 year duration of the loan, so it makes no sense for a bank to play "what if you had to pay 10% interest rate" games, as it can never happen.

Since their cookie cutter processes and templates will probably force this to happen, its just easier of they don't get into it at all.