Mortgage deposits and family trusts (possible Sarnie content
Discussion
I am currently (one of the) trusttee(s) of a family trust set up for an elderly relative. The estate is current cost neutral, not quite matching inflation but not losing money in terms of the physical amount.
One of the beneficiaries of the estate (of which the contents of the trust is part) has made a request that we are keen to support - how ever the technicalities of mortgage lending are somewhat beyond me.
The basic premis is that the beneficiary would like to borrow some money from the trust to move from a 5% deposit to a 10% deposit due to the significantly better interest rates. The idea would be that the repayment would be made from their bequethment upon the passing of the elderly relative - the loan amount would be under 50% of their ultimate bequeathment .
My knowledge of mortgages is that when someone declares where the money is from, generally speaking a lender will want that to be officially made a gift - so there is no alternative charge or any other credit obligation on the mortgagor.
Offering the money as a gift would involve changing the will as they aren't physical amounts, rather shares of the whole, and this isn't viable.
Keeping it on the trusts books as a loan would then keep it 'within' the estate account wise.
This cannot be something that is beyond human experience. So there must a be a way of doing it.
Would a lender baulk at a family loan to be repaid on this basis as well (here comes the possible Sarnie content!). The person has offered to pay interest only on the amount (tracking at the rate for the rest of the estate - a super cautious 3% or so) as they don't want to see the estate out of pocket. The interest jump from 5-10% is so vast that this is a very sensible option for them still.
If we formalise the loan and they pay in officially, I suppose this will need taking into consideration during the mortgage application?
Sorry its all a bit jumbled - I am just trying to reconcile my (limited) understanding of the process with the fact that this surely can't be unheard of......
One of the beneficiaries of the estate (of which the contents of the trust is part) has made a request that we are keen to support - how ever the technicalities of mortgage lending are somewhat beyond me.
The basic premis is that the beneficiary would like to borrow some money from the trust to move from a 5% deposit to a 10% deposit due to the significantly better interest rates. The idea would be that the repayment would be made from their bequethment upon the passing of the elderly relative - the loan amount would be under 50% of their ultimate bequeathment .
My knowledge of mortgages is that when someone declares where the money is from, generally speaking a lender will want that to be officially made a gift - so there is no alternative charge or any other credit obligation on the mortgagor.
Offering the money as a gift would involve changing the will as they aren't physical amounts, rather shares of the whole, and this isn't viable.
Keeping it on the trusts books as a loan would then keep it 'within' the estate account wise.
This cannot be something that is beyond human experience. So there must a be a way of doing it.
Would a lender baulk at a family loan to be repaid on this basis as well (here comes the possible Sarnie content!). The person has offered to pay interest only on the amount (tracking at the rate for the rest of the estate - a super cautious 3% or so) as they don't want to see the estate out of pocket. The interest jump from 5-10% is so vast that this is a very sensible option for them still.
If we formalise the loan and they pay in officially, I suppose this will need taking into consideration during the mortgage application?
Sorry its all a bit jumbled - I am just trying to reconcile my (limited) understanding of the process with the fact that this surely can't be unheard of......
It's possible.
From a lenders point of view, he is borrowing his deposit. Most lenders...........possible 90%+ of them.......would decline an application where part of the deposit is being borrowed.
The few lenders that would do it will want to factor in the repayments of the loan into affordability in the same way as they would a personal loan.
The sourcing of the mortgage would be done primarily on who has the best rate of those that will lend, rather than just applying to the lender with the lowest rate......
From a lenders point of view, he is borrowing his deposit. Most lenders...........possible 90%+ of them.......would decline an application where part of the deposit is being borrowed.
The few lenders that would do it will want to factor in the repayments of the loan into affordability in the same way as they would a personal loan.
The sourcing of the mortgage would be done primarily on who has the best rate of those that will lend, rather than just applying to the lender with the lowest rate......
The trustees do have absolute discretion regarding funds.
Mystery option B is to do it as a gift - and work it all out.
However, the reason a loan is the favored idea is not that the trust needs the money (it doesn't), but that the will (which cannot be modified at this point) is not split into sums of money, but into shares - so if the money leaves the trust, other beneficiaries are affected (something we want to avoid) - if the money is loaned it can stay 'on the balance sheet' as it were and therefore it won't affect the other beneficiaries - everyone else's portion can be as it was, and the loanee's portion can be debited the appropriate amount as repayment.
Mystery option B is to do it as a gift - and work it all out.
However, the reason a loan is the favored idea is not that the trust needs the money (it doesn't), but that the will (which cannot be modified at this point) is not split into sums of money, but into shares - so if the money leaves the trust, other beneficiaries are affected (something we want to avoid) - if the money is loaned it can stay 'on the balance sheet' as it were and therefore it won't affect the other beneficiaries - everyone else's portion can be as it was, and the loanee's portion can be debited the appropriate amount as repayment.
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