Friendly loan help
Question from Rob updated on 10th November 2015:
We are about to take out our first mortgage to build a new house. Upon build completion we should make $150,000 equity, which we want to use for a do-up buy/sell. We plan to use revolving credit for that. As we might be limited in our repayment capacity for two mortgages we want to know if it technically possible to team up with our friend who will "buy" the property - but we'll use our revolving credit to pay the mortgage repayments?
Our expert Kris Pedersen responded:
I am presuming it is the second property that you are looking to put through your friend.
The key points to note are:
1. The bank will still need your friend to go on the loan so your friend will need to be able to pass the necessary servicing and other bank criteria. You can make the mortgage payments but, in the bank's eyes, your friend will still need to stack up to afford this.
2. There are tax rules that apply when you get into property trading and, as it is mainly your friend who will be liable here if they are the owner, your friend needs to get specialist tax advice so that they are aware of the risks.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz