Investment mortgage

A mate of mine was only able to get an investment mortgage (25 years etc) on a property as it was deemed too expensive for FTB.

He intends in living in the property.

Are they are tax implicatios of this. Would he have to pay capital gains if he sold it even though its his primary residence ?

Any other implications that i should point out to him

Thanks

I'm not sure about tax implications but did your friend shop around to see if another lender would offer them a standard mortgage as opposed to an investment mortgage? Are they paying investment rates? I assume they had a deposit in order to qualify for an investment mortgage. They may have been able to avail of home loan rates with some lenders depending on the amount of their deposit.

He only got the mortgage because of his personal relationship with the bank manager and that is the only reason he was even offered an investment mortgage.

Just cant figure out whether he would pay capital gains if he used it as his primary residence.

Hel_n said:

I'm not sure about tax implications but did your friend shop around to see if another lender would offer them a standard mortgage as opposed to an investment mortgage? Are they paying investment rates? I assume they had a deposit in order to qualify for an investment mortgage. They may have been able to avail of home loan rates with some lenders depending on the amount of their deposit.

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Don't think the nature of the banks product ("Investment Mortgage") has anything to do with how the revenue would treat the house.

If he lives in it, no CGT. If he rents it out, he pays CGT. That's how I see it.

By the way, alot of people buy certain products because they know the bank manager/salesman and he's doing them a favour. But banks have different criteria, some more lax than others, so the bank manager doing him a favour in one of the more stringent banks could ultimately cost him more. Investment mortgages don't seem to get the same competitive treatment as residential mortgages and will usually cost more unless you have a long-standing relationship with the bank and a rather large portfolio.

As Hel_n says, shop around.

Do you mean he got an interest only mortgage?

Nope. An investment mortgage is whereby you can get 98% mortgage and max is 25 years. (i think)

CCOVICH said:

Do you mean he got an interest only mortgage?

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A 98% LTV and 25 year term doesn't necessarily make it an investment mortgage. You can get owner occupier mortgages that match those criteria. Is he paying a higher rate than owner occupiers with the same institution. I'm not clear what supposedly makes this an investment mortgage to be honest... Ultimately the type of mortgage should have no bearing on owner occupier tax treatment if he is actually living there and not renting it out (other than possibly under the rent a room scheme).

I think what has happened here is that your pal is being charged more than he would for a normal mortgage.

If he occupies it as his sole residence, it seems he should elect to have this as his 'principal residence'. (Note if he was renting ..that would have been his PPR up to now). This will take care of CGT.

He would qualify for home loan interest relief and should be able to get this via TRS. You have not given any details if has bought or claimed before.

If he was a first time buyer he would also not have to pay higher stamp duty rates. This appears to be a classic case of your mates bank manager saying to him that he will only give him a mortgage at the (usually higher) investments rates thus bank gains. Tell your mate to strike him off the Chrimbo card list and to re-mortgage with another bank but check terms and conditions to see he's not locked in to his current bank for a certain amount of years.