Sell House - Don't tell bank (avoid breaking fee)

[FeverPitch]

I own four houses my mortgage is grouped together in to one large loan. I own approximately 65% equity. I need to sell one property ... if I do

1. Do I Have to tell the bank

2. Do I have to immediately pay the loan off?

There's a large breaking fee I'd like to avoid by putting this money in to a high interest term deposit.

So I only pay the difference in interest and ride out the fixed terms.

Thanks Matt

[Bobsyouruncle]

Yes and yes. Well number 2 depends on the bank. They will decide how exposed they want to be and tell you how much you have to repay. Ask them now before you actually sell it

[Wellington Broker]

Oh dear. Bank will find out if the property is being used as security when they receive a discharge request from your lawyer.

If you have that much equity there may not be any requirement to repay lending but this will be at the banks discretion.
Best to do the sums on that break cost vs interest after tax. You don't need to break the entire loan portion to make a payment. Would be unusual to be better off with money in a savings account v just paying it.

[Dunning]

1. Yes

2. More than likely yes. A lot depends on your structure, future plans and current situation. Are the mortgages cross guaranteed? Is one your PPOR? Do you have a revolving credit account you can pay down and reduce? Are you looking at purchasing another property where the mortgage can be moved to?

[artemis]

Had a similar situation, though with more equity at the time. Discussed with the bank if a specific property could be removed as security. Bank said OK and it was done by lawyer.

[Wayne]

If the bank has security over the property how could you not tell them?

[donna]

Sounds like you need to do some restructuring of your loans especially if your home is in that lot. I'd suggest you talk to a good mortgage broker who is used to dealing with investors etc - I use Kris Pedersen of Kris Pedersen Mortgages (and there are good brokers on PropertyTalk too so you'd do well to approach them too).

cheers,

Donna

[FeverPitch]

thank you everyone.

I have three investment properties with one bank and my own home with a different bank. The investment properties are cross guaranteed - so you are right they will know. I loosely spoke to the bank and they said if you have enough equity in the other two properties its possible not to pay the loan back on this one property.

I need to sell but I don't want to pay the large breaking fee. I can pay two lots of 5% of the fixed term either side of this May. Pay off the floating portion then I would be left with $400,000 on a fixed loan.

The fixed loan is locked in for 5% three years to go. I was thinking don't break the remaining $400,000 and put the money in a term deposit for 3.65% so pay the difference 1.35% interest.

I need to nut out the figures more to see if its worth it. I was just curious to know if I could legitimately do this and if the bank would make me pay it all back.

I guess its just a simple conversation with the bank manager at the end of the day.

[Wellington Broker]

They should let you do a partial break of the portion you're repaying with a partial break cost. I can probably help with the transaction if you're after some more specific advice

[Meehole]

I was told that the banks are now moving the goal posts if you sell an investment property is leveraged off others. They are wanting more equity and less risk so you may find that you have to restructure everything and dare I say it more equity.
Also told that there is a new regulation coming in global banking that could eventually mean that investors pay 3% over what owner occupiers pay on their mortgage.

[Wayne]

Also told that there is a new regulation coming in global banking that could eventually mean that investors pay 3% over what owner occupiers pay on their mortgage.

Where did that come from?

[Wellington Broker]

Basel 3 if thats what he's talking about. I don't know specifics but capital requirements have been increasing for investors since GFC and in this country since 2010. Would be interested to see where that 3% quote comes from.
Numbers out of APRA (Aussie regulators) indicate tougher requirement for investors again, a crackdown on interest only and higher rates. Better margins for banks but I guess they're trying to avoid situations like Ireland where economy boomed on property development off the back of investment lending and economy tanked and they were left with empty buildings

[cube]

No chance of a development boom in NZ until the consenting process gets easier.

That 3.65% is before tax, I assume, so take that in to account (vs 5% tax deductible)

Have you asked the bank what the break fee will be?

Related question - are break fees for an investment property tax deductible?

[Bob Kane]

Related question - are break fees for an investment property tax deductible?

Yes .

[Anthonyacat]

Related question - are break fees for an investment property tax deductible?

If the loan is for the purchase of the investment property, rather than just secured over it, absolutely. But not always in the year of breaking - sometimes you'll need to apportion it over the following few years.