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  • Transfer of existing fixed loan to the new property

    Hi all. Need an advice from the community. Recently me and my partner purchased a new house (for us to live instead of the old one). As soon as we got a S&P agreement on the new house I listed my old existing house which was subsequently sold shortly after. The previous house was on my name only where the new one was on both our names.

    My intention was once we sell the house to keep the fixed mortgage which I thought we could simply transfer to the new house and pay the profit we made on the sale towards the new mortgage.

    On the settlement day just an hour before the deadline for the new owners to get the key release I got a call from the bank. The guy sounded really confused but he explained to me that I cannot transfer existing mortgage to the new place, I have to pay it off first and then only the balance will be paid off to the new mortgage. I had to reluctantly agree as otherwise I was told they won't release off the security from the house and subsequently the buyer of our place would not receive the keys before the deadline. Later on I logged in to the online banking to check what happened and found out that not only they paid off the mortgage on my investment property instead of the mortgage on the owner occupied house which I sold but they also charged me a break fee of $5,500.

    I emailed the bank today to check what happened as I never intended to pay off my investment property and they told me they did everything right and since they had to break the fixed mortgage the break fee would have to apply. They promised to look into the fact that they closed off the mortgage on investment house instead though.

    I wonder if this is what they said is correct and also can the bank charge the break fee without letting me know about it first.

  • #2
    It is called security substitution and you can only do it if the entity or owners are identical. Otherwise it has to be re-documented as a new loan. So if one was jointly owned and the other is solely owned you can't do a security substitution. Only the security can change nothing else.

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    • #3
      Thank you Bobsouruncle for clarifying this for me. I wish the bank could explain it as clear as you just did

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      • #4
        The silver lining in the situation is that part of your new borrowing is still deductible - the portion that applied to paying off your investment property loan. But I don't envy your accountant having to deal with the situation this coming year end!

        If you've previously been doing your own taxes, I'd highly advise you get an accountant now, your stuff just got more than complex enough to justify it. Make sure you get a CA, preferably one who specialises in property, and ideally one who also owns property themselves.
        AAT Accounting Services - Property Specialist - [email protected]
        Fixed price fees and quick knowledgeable service for property investors & traders!

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        • #5
          This story as presented doesn't seem to make sense.

          You have owner occupied house A with a mortgage in your sole name, and investment property B with a mortgage, ownership not stated. You bought new owner occupied house C in joint ownership with a mortgage.

          As you have explained it here, when you sold property A, the bank cleared the mortgage on property B instead, and created a new mortgage on property C.

          Taking that as written, it means you still have a mortgage on property A, even though you no longer own it.

          So either there's a mistake here, or you've left out some details.

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          • #6
            You haven't read it right Lan, there are only 2 houses, the old one and the new one.

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            • #7
              Originally posted by Bobsyouruncle View Post
              You haven't read it right Lan, there are only 2 houses, the old one and the new one.
              It looks like there are 3 houses to me, Bob:
              and found out that not only they paid off the mortgage on my investment property instead of the mortgage on the owner occupied house which I sold
              Unless the terms "investment property' and "owner occupied house" are referring to the same property, it would seem there are these 2, plus the new one. But since the clauses of this sentences are linked by "instead of", it seems unusual to use two different terms to refer to the same asset in that manner.

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              • #8
                Read like 3 to me too. I couldn't understand the OP either.

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                • #9
                  Hi All. I see how it can be confusing! Yes, there were 3 houses in the mix and instead of paying off the mortgage on the houses which was sold the bank paid off my investment property... I spoke to the bank a few times and they kinda admitted the mistake so now waiting to hear back from them if they are going to reverse the whole thing back.

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                  • #10
                    Yeah, I would think the upper-ups at the bank would be quite angry to hear that they now have a mortgage lodged against security that they have no legal claim to.

                    Looks like someone's going to be in trouble, and I don't think it will be you!

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                    • #11
                      But how can the settlement occur when there's a mortgage in your name against the house?

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                      • #12
                        Yip, seems a bit odd to me as well, I thought lawyers were supposed to check things like that.

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                        • #13
                          Originally posted by Connor View Post
                          But how can the settlement occur when there's a mortgage in your name against the house?
                          I don't know. I think they use my investment property as security against that mortgage. I am quite disappointed with the lawyer tbh as it was their job to make sure everything is done properly which is certainly not the case... Now I am waiting to see how bank is going to resolve this situation.

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                          • #14
                            You could consider a claim under the consumer guarantees act against your lawyer for failing carry out their service to an acceptable standard.

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                            • #15
                              Originally posted by MrRollerson View Post
                              I don't know. I think they use my investment property as security against that mortgage. I am quite disappointed with the lawyer tbh as it was their job to make sure everything is done properly which is certainly not the case... Now I am waiting to see how bank is going to resolve this situation.
                              TBH, I don't think you are explaining things correctly. What you just say here doesn't make sense to me either given what you wrote before.

                              Have you settled the new house?

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