What You Need to Know About Borrowing with a Trust

There’s more to it than you think
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    Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
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Did you know there are two main reasons why you can use a trust to buy an investment property – getting tax benefits and asset protection?

However most financial institutions do not know how to structure these loans and as a result, you could lose the tax benefit on your trust loan.

But as always, there some lenders who do offer these loans.

So today we’re going through exactly what you need to know about buying with a trust.


What is a Lender’s Requirement for Loan Approval?

Once lenders receive trust loan applications, they carry out a credit assessment in order to find out whether they can approve the loan. This is a key process as part of setting up the loan along with a few other requirements.

lenders trust

  • Type of trust – The lender undertakes the assessment process based on the types of trust. There are some financial institutions that prefer a family trust while others tend to choose discretionary trusts. Some banks also go for hybrid or self-managed superannuation fund trusts (SMSF). This element of how you’ve set up the trust is important to understand that it varies from lender to lender, so you may need to shop around or speak to your mortgage broker about which lender is right for you.


  • Credit File of the Trust – Banks also assess the trust credit file, which plays an important role in your application. Most of these firms maintain a credit file and some beneficiaries or directors also maintain such files. They can submit these files along with the loan application for assessment purposes.


  • Beneficiaries – One of the requirements of a lender’s institutions is that they want adult beneficiaries to act as guarantor. The number of beneficiaries varies in different trusts. Some of them have two while others have more than three or four beneficiaries. The different structure is another reason why it can become difficult for trusts to take out a loan.


  • Loan Structure – Individuals often prefer to apply for a loan in the name of a director or a trustee instead of applying in the name of a trust. The purpose of doing this is to access negative gearing benefits, especially in the case of hybrid or unit trust.


  • Trust Deed – Through using a trust deed, banks identify trustees and beneficiaries for these companies. The deed enables a lender to evaluate whether beneficiaries or trustees are in a position to borrow.


What additional documents do I need?

In order to set up a trust loan, the process is different from setting up a standard loan and you’ll need some extra documentation. To make the process a little easier, make sure you come prepared with the following documentation:

  • Identification documents of beneficiaries, directors
  • Tax returns
  • In case of a trustee of a firm, a certified copy of a constitution
  • A certified copy of a trust deed
  • In some cases, such as new trusts or low doc, banks also need an assessment notice for a trust

Is there a possibility of discounted loans?

It is possible to get a discount on your loan however you will need to make sure that it’s set up as a residential loan. This is due to if you set it up as a commercial loan, you’ll end up paying higher interest rates and additional fees. This requirement means that you need to find a lender who is ready to work with your proposed loan amount and understands your type of trust. So make sure you do your research and have these questions ready to go.

trust loan

Trust Loans – From a Lender’s Perspective

In Australia, banks and other financial institutions consider it a hectic task to issue loans to a trust, because of the complexity of trust loan applications.

Mortgage brokers, bank managers and staff dealing with credit find sometimes also find it hard to understand the mechanism of these loans.

On top of that, extensive documentation and legal matters make it even more difficult to process these loans. If you can understand this as an applicant, it will give you an insight towards the response you get. What you can do to help the situation is to have all documentation and people involved in to process (and trust) responsive and working together in a timely manner. This will make the lenders and bank managers more willing to help and get the process sorted in the quickest amount of time possible.


Are there any additional fees linked with a Trust Loan?

Every bank charges an additional fee when they lend money to a trust due to additional work in relation to indemnity documents and guarantee preparation.

lenders trust fees

Lenders prepare the documents to get signatures of trustees of a company. Therefore, when applying for a trust loan, it’s important to take all of these factors into account.

If you would like more information about borrowing with a trust, speak with our team of mortgage experts on 1300 088 065.

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across Mortgage Brokers in Australia

Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
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