Author Topic: Mortgage query  (Read 2044 times)

Murdoch

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Mortgage query
« on: October 26, 2021, 06:39:25 PM »
Hi,

Hoping for some advice from the Aus group please.
Family home in inner capital city inherited by my mum and her sister. In a trust with both as beneficiaries.
My aunts keen to sell, but my mum wants to remain living in it and can't afford to buy her out.
Property value $3mil.
I'm planning to buy my aunts 50% share for $1.5mil and consider this a sound investment. Will rent out my portion (house is split).
The sale will dissolve the Trust, leaving myself and mum as 50% owners in common.

My query is around whether to mortgage entire costs or partial costs.
I have $700k in shares, $200k in cash. Shares are all >12 months owned except for reinvested dividends.
Bank offering low 2% interest rates at full cost including stamp duty etc... so loan of just under $1.6mil.
Considering loaning the whole amount and holding shares, vs partial approach, vs sell all shares and minimise mortgage.

I'm in max tax bracket so would be able to deduct full interest costs on loan.

In a way it's an investment, an inflation hedge, and a bit personal.

Never held any significant debt.
Bought our current investment property in cash in the wife's name.

Feedback encouraged please.

Cheers
Murdoch

deborah

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Re: Mortgage query
« Reply #1 on: October 26, 2021, 07:48:17 PM »
Is there a way to change it to separate titles once you've taken over ownership from your aunt? If your mother needs to go into aged care or a retirement community, she'll probably need the money from her half of the property.

Murdoch

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Re: Mortgage query
« Reply #2 on: October 26, 2021, 09:25:30 PM »
Hi Deborah,

No sadly. It's on a single title deed. House is structured so there a full house upstairs, and a full house downstairs, completely separated.
It technically sits on what could be 4 blocks, but house is heritage listed and sits across 3 of these.
We'll undergo a process to have this block (gardens at present) separated out as its own title for future options.

Mum is healthy, mid 60's, so whilst risk exists it is considered low.
She plans to move to retired living situation at the age of 70.
At this point we will sell in entirety or I will buy her half.

I know what some will say, and there are plenty of potential fails in this plan.
I'm accepting of those risks.

Cheers
Murdoch

Ozlady

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Re: Mortgage query
« Reply #3 on: October 26, 2021, 11:30:18 PM »
Qn: are you an only child?

Murdoch

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Re: Mortgage query
« Reply #4 on: October 27, 2021, 05:11:33 AM »
Hi Ozlady,

No. One of quite a few kids.
Only one in a position to purchase half though, and have all their consent/blessing to do so.

Murdoch.

Ozlady

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Re: Mortgage query
« Reply #5 on: October 27, 2021, 05:31:53 PM »
Hi Murdoch

These are my thoughts ONLY..not knowing your full family situation...

(a) I think may (?) give rise to potential problems in future if you are not the only child...you may want to discuss with mum and the other kids and put it in writing

(b) you have chosen tenants in common vs joint tenants...ruminate on that...

(c) 3 mil is quite a big , lumpy investment in a SINGLE asset ...are you buying more in the future?

(d) but at the end of the day, you and your mum will have a 1.5 mil loan on a 3 mil asset...this may turn out to be very advantageous in your future borrowings ..as in a 50% LVR..heck! you can even borrow more (but mum must come to the table)


However your question is whether you should borrow to the max versus partial..based on my own experience (and i am retired) ..looking back...i wish i had leveraged more:)....max borrowing capacity only occurs during a particular span of your working life...and don't forget you can always sell those shares if shit hits the fan (pardon moi French)....

Proviso: you have a solid working job going forward:)
« Last Edit: October 28, 2021, 07:01:26 PM by Ozlady »

marty998

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Re: Mortgage query
« Reply #6 on: October 28, 2021, 08:07:12 PM »
Sound plan, leave the shares to continue growing, borrow the $1.6m and spend the next however many years paying it down. Try and take a mix of split and variable loans so you can take advantage of cheap rates as well as filling up a big offset account, when in future you might need to buy out the other half.

Hopefully by then the shares will also have grown to such an amount that you’ll have the capital to redevelop the block if you need to.

Appreciate the points about family risks but I feel those will be there regardless of what you do, so you might as well carry on.


Murdoch

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Re: Mortgage query
« Reply #7 on: October 29, 2021, 03:37:46 PM »
Cheers Ozlady,

Future sibling issues may still arise, but we've all met twice to discuss and the others were all offered the opportunity to joint the purchase. None interested. I've got their full consent to proceed.

Tenants in common as choice so if I die the 50% still goes to my own family/estate, not just to my mum.

Yes, lump sum investment, but considering it diversification given my near 100% shares portfolio for almost 10 years now. Did buy a house last year, currently rented, but it's where we'll move into when we move back to mainland Australia in a few years.

Cheers Marty,

That's the way I've been thinking about it. Will likely keep building shares and pay minimum payments on mortgage with that exact plan in mind. Risk is shares tank or I lose my job, though unless I get deregistered I'm in a very employable role (rural doctor) and the mrs can always go back to work if needed (teacher). Having an option to develop in future has a high chance of paying off.

Murdoch

deborah

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Re: Mortgage query
« Reply #8 on: October 29, 2021, 05:42:02 PM »
Sounds like you've got a good plan.

happy

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Re: Mortgage query
« Reply #9 on: December 02, 2021, 07:21:18 PM »
Bit late to the party, but I agree with Marty. Don't sell the shares and get a mortgage for the whole amount. I'm not sure how much the rent is, but I like to   consider all the negative possibilities and how I would handle them. eg What if mortgage interest rates go up? At what point would you have a cashflow problem? ( the banks have a built in margin in what they will loan you for this these days I understand, but good to do your own math). What if the property market tanks? And so on.

Murdoch

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Re: Mortgage query
« Reply #10 on: January 25, 2023, 01:55:59 AM »
Hope no one minds me reviving this old thread:)

Went full loan for the mortgage ($1.5m) for this family property. Fixed rate 2.64% for years from Jan 2022.
Set up as an investment, negatively geared, paying interest and principle.
Considering options going forward with a year to plan and keen on thoughts from this group again please?

We are selling our other residential IP this year.
Bought with case for $600k, in wife's name, rented, returns about $5k per annum positive after all expenses.
Valued in high $800k range for sale.
Owned >12 months, so CGT reduction on sale.
Wife's income is approx $30k per annum, mostly shares distributions and then rental income offset by costs of property.

Query is around approach to the mortgage which I suspect will refinance somewhere in the 5% range, but who knows what this year will bring from the reserve bank.

Options:
- Put all monies from wife's IP to pay down debt.
- Put all monies from wife's IP into shares.
- Some split of the two.

I can still afford a mortgage up to and above the 5% range, but also feel that paying down such a debt for guaranteed 5% return is also a good deal.
Any strong arguments from a 'returns' perspective that could be made to sway the decision either way?

Cheers in advance.