What Happens When You Are No Longer a Owner Occupier

Trying2SaveABuck on 20/03/2017 - 08:53
Last edited 20/03/2017 - 08:54

Hi all living in my place now for almost 3-years planning on moving out with the girlfriend and renting out my property probably later this year.

Currently get the owner occupier rate but if i move out it will clearly be an investment?

A few questions do i have to let the bank know? do i have to pay the investor rate? do banks charge for this change?

And what if i move out and it doesn't work out and i want to move back in after 12 months what then?

I was considering just not saying anything but im not sure on the process?

anyone with any experience in this kind of situation please advise

General Discussion

Comments

  • gimme on 20/03/2017 - 09:01
    +3

    I wouldn't tell the bank anything. As long as you're paying the mortgage I don't think the banks would know/care. I didn't even realise there were different rates. I've been in an out of my property over the years without doing anything with the loan. The minute you mention it to the bank it may lead to some unpleasant red tape and knowing banks, unnecessary cost to you! My philosophy with anything, if it's illegal (i.e you're breaking the LAW!) don't do it but if it's just some arbitrary rule I'm happy to look for the best outcome for me.

  • tomleonhart on 20/03/2017 - 09:04
    +2

    Nope. As long as you pay the mortgage ontime, bank won't give a toss. They'll only ask if you refinance or seek a second/ third mortgage.

    Yes technically you have to "tell the bank when your situation changes". But i'm not aware of any of my friends have done it nor any of them has faced any problem not doing so.

  • peterpeterpumpkin on 20/03/2017 - 09:14
    +1

    It's not the banks you have to be worried about. It's APRA. APRA's the one who tell the banks that only a certain percentage of loans can go to investors and that loans should be made less accessible to investors to give potential home-owners a chance. The banks just vary in their implementation. Credit unions don't have to comply with the regulation.

    A lot of people that were slugged with higher interest rates on their investor loans made a switch to owner-occupier loans. I don't even know what punitive measures, if any, would be implemented for doing the wrong thing.

    • Artkin on 21/03/2017 - 10:20

      Apra regulate banks. If Apra is so concerned they would introduce more stringent rules around 'current use'. More interesting is when renting it out attracts cap gains s tax (5y?)

  • Skramit on 20/03/2017 - 09:20
    +2

    do i have to let the bank know?

    No

    do i have to pay the investor rate?

    No

    do banks charge for this change?

    N/A

    And what if i move out and it doesn't work out and i want to move back in after 12 months what then?

    Nothing, as per above answers.

    anyone with any experience in this kind of situation please advise

    After you move out, make sure you claim the depreciation and the interest payments on the property as it will be an investment property.

    • TrailerTrash on 21/03/2017 - 08:28
      +1

      Nailed it Skramit.

      I did the same when moving in and then out of my investment property and even the Bank Mgr said don't worry about calling through and changing the rate 'back' to the investor rate.. said their systems might pick it up one day but until then ride the lower rate wave.
      Same goes for Council Rates - some councils charge a higher 'investor' rate vs OO, so once again leave it be.

    • nilchicago on 11/09/2019 - 08:51

      But how can one claim interest certificate on the interest component of loan paid for tax …

  • holdenmg on 20/03/2017 - 09:46
    +4

    Probably worth checking out what this does to your Property Insurance premium.

    You don't want to find out later if moving from Owner/Occupier to Tenanted Property is something you should have notified them of…

    • gimme on 20/03/2017 - 09:53
      +4

      yeah good point - Get RENTAL insurance.

    • Trying2SaveABuck on 20/03/2017 - 09:55

      My building insurance is inking to body crop if i move out i wont be paying contents

      • gimme on 20/03/2017 - 10:00
        +1

        Yup BC insurance covers the bldg and common areas but I still recommend Rental cover. Up to you as it's not essential BUT they are generally cheap and Tax deductible so worth it imo.

      • SirFlibbled on 20/03/2017 - 12:28

        Investment insurance covers more than the building though. It will also provide you with things like renters defaulting, damage to the unit etc.

        • Trying2SaveABuck on 20/03/2017 - 14:19

          Anyone you recommend for rental insurance?

        • gimme on 20/03/2017 - 14:40
          +1

          @dpgrubesic:

          Terri Scheer are one of the more popular ones. I used to be with them. Although never made a claim so can't comment on how good they are.

      • zambuck on 21/03/2017 - 08:37

        I'm sure there are state differences, but in NSW as a landlord of a strata unit the strata is responsible essentially for everything outside the paint on the walls and ceilings, and under the floor coverings. So as a landlord I have contents insured including floor coverings, kitchen, bathroom, light fittings, paint, etc. So if your tenants go crazy and mess up the inside of your unit, the landlord insurance would cover those contents, and usually the lost rental income while repairs are being completed. Your best bet is to discuss your state's rules with a potential insurer.

        Spend some money (it cost me $500) for a depreciation schedule on the property. This lets you claim depreciation of the building and contents in your tax return.

        Also consider getting a proper valuation done. Any increase in the value of the property while it is being rented could be subject to capital gains tax. If you don't get a valuation at the point it becomes a rental property, then the only option for determining that amount would be to average the increase over the entire duration you owned it. eg. If you bought for $100k, lived in it for 3 years, then rented it out for four years, then sold for $300k, you'd be up for CGT on 4/7ths of the $200k increase. If you happen to know that after the 3 years the property is worth $200k, and you get a valuation stating that, then you'd only be up for CGT on the $100k increase that occurred while it was being rented.

  • uder on 20/03/2017 - 09:47
    +1

    As others have said you don't need to advise the banks.

    I've even heard from bankers I know that the banks are writing owner-occupied loans for purchases which are clearly for investment - they just can't use the rental income in the servicing calculations.

  • sklzthtklz on 20/03/2017 - 09:54
    +1

    if you've got insurance let them know, it's a different kind of insurance for landlords. I work at a bank and I've not heard of anyone writing investment properties as owner occ, also keep in mind you can obviously only have one owner occupied property with a bank.

    I think really you should just check with your insurance company; much like for car insurance your vehicle needs to be registered, so too may they require the bank recognises your property is going to have renters in it, given that the property is semi owned by the bank.

  • Trying2SaveABuck on 20/03/2017 - 09:56

    Thanks everyone ill keep my mouth shut then.

    My building insurance is linking to body cooperate and i wont be renewing my contents insurance if/when i movement out

  • railspider on 20/03/2017 - 10:10

    Not OP, but have a related question.

    If your house is your primary residence, you can sell it and not pay CGT. Apparently you have up to 7 years after moving out to still claim this primary residence CGT discount.
    My question is: if you move out and rent your house to someone else, then negatively gear it, can you still claim the CGT discount within the 7 years? Or does negatively gearing eliminate the 'primary residence' excuse?

    • retiredfeline on 20/03/2017 - 10:13

      Actually 6. The formula is complex but there are worked examples at the ATO website.

      • railspider on 20/03/2017 - 10:16

        Not to worried about the years thing, more concerned about whether using negative gearing will result in me losing the 'primary residence' excuse when I sell (within 6/7 years)

    • gimme on 20/03/2017 - 10:18

      CGT discount means something else (it means 50% discount if you've owned an asset for over 12 months - not exemption)- Your terminology is incorrect and may confuse.

      To answer your question - YES for the portion that you were living in the house and a couple of years after renting etc. This is an oversimplified answer and there's a little bit more to it (as stated above).

      • railspider on 20/03/2017 - 10:23

        Sorry, I should've used the word exemption.

        Thanks for your answer. I had trouble finding anything conclusive on the ATO website regarding this - it makes sense the CGT exemption still applies, I was just worried the Tax Office might classify it as 'double dipping' on tax breaks.

        • gimme on 20/03/2017 - 11:00
          +1

          You're not alone - The website doesn't really lay it out in black and white terms (surprise surprise :))

          It's common knowledge (or should be) amongst tax agents (No fancy accountant required) - Next time you're getting your tax done, just ask and they'll explain it. Like I said, there are some nuances and criteria but in theory it's possible.

  • crazyj on 20/03/2017 - 10:21

    But if you make changes to the home insurance, the bank will find out.

    As a normal part of a home mortgage, they are named as an interested party on the policy - hence they will be notified.

    (so if you cancelled, or just changed it to contents, they would know)

    In practice though I have found they don't give a toss.

    • sklzthtklz on 20/03/2017 - 10:43

      the bank might be advised, although I work in mortgages specifically and that's not something that's come up.
      What I do know is that if you were to put through a claim using insurance that was for an owner occupied property and misrepresent it as though you weren't renting it out, and the insurance company found this information out either then or later, they would very likely do you for fraud.
      That's intense.

      • gimme on 20/03/2017 - 11:02
        +1

        No fraud - He has Strata Insurance which is independent of whether a property is owner occupied or rented so in case of a claim there is no reason to lie.

        • Trying2SaveABuck on 20/03/2017 - 11:17

          I think i few people missed that comment i got body crop building insurance i wont need contents if i rent it out

        • sklzthtklz on 20/03/2017 - 11:55

          @dpgrubesic:

          ah yes missed that my bad.

        • ceeto on 21/03/2017 - 09:56

          @dpgrubesic:
          I would be cautious about assuming the body corporate insurance will cover you for everything you need. As others have mentioned, you are responsible for a number of components of your unit (that are not covered by the body corporate), and I suspect the body corporates insurer would fight against payouts where a renter has done any of the damage. Thats what renter insurance is for. Some body corporates also take a different view of rented appartments.

          I may be a little old fashioned on the subject of the bank loan - they can be bastards, as others have observed, but not notifying them you are renting the unit out may be against the terms of your loan (would have been with mine) and I never like to give them something they can hold over me :) In the past, I notified my bank of a change and they noted it, left us on the existing interest rate but made it an investor loan. YMMV.

          Good luck.

  • kywst on 20/03/2017 - 12:05
    +1

    The banks are scum. They effectively loaned you money that didn't exist until it was entered in their ledger to allow the purchase of your house in the first place and then force you to pay it back multiple times over all while holding the property over your head as a bargaining chip. So while you're paying this off, the bank owns your property … disgusting but not much we can do about it.

    I wouldn't tell them anything if it involves paying them more. You're already their slave.

  • MoeDeeB on 20/03/2017 - 12:11

    My bank when notified of change of address, automatically changed my rate from Owner Occupier to Investment Rate!!!

    • Trying2SaveABuck on 20/03/2017 - 13:59

      You couldnt of changed you mailing address?

    • Fexofenadine on 21/03/2017 - 16:38

      Which bank? If you don't mind answering.

  • hazzad on 21/03/2017 - 08:52

    Pretty sure you are legally required to advise the bank of any change to your circumstance which would clearly include a change like this. Now in reality I have no idea if they would really chase down such info or what the ramifications would be if they found out some time down the track that you had not advised and still been claiming an owner occupied rate. That can be a decent chunk of change over a number of years. I read recently that they are cracking down on those who are doing such things as its a pretty well known loop hole as its pretty easy to arrange mail forwarding from an address should you want to do it. I guess it comes down to how comfortable you are with any penalties(if any) if they find out.

  • Seraphin7 on 21/03/2017 - 09:01

    The only point at which this might become an issue is if you are looking at taking out a second loan with the same bank for another property.

  • born2reign on 21/03/2017 - 10:04

    If you have an owner occupied home loan you cannot claim any tax deductions.. if you take the risk and get audited in the next 7 years you will likely have to pay back any tax deductions you've claimed since you moved out of the property.

    Personally, I don't think the risk is worth it to save .20% or .40% in interest rates as the window of getting audited is too long.

    There is also the principle behind the matter, that what you are planning on doing is finance fraud, and not much different to mortgage fraud (lying on application to benefit on a more favorable outcome) or going to centerlink and applying for the doll, while working full time, cash-in-hand.

    Not entirely the same thing, but not very far off at all, in principle - I'd caution against it

    • gimme on 21/03/2017 - 12:12

      really? source?

      If you own a property that is being rented out you have to declare all income related to the property. You are also entitled to claim deductions for expenses, including interest expenses on the mortgage. I don't believe the ATO cares how you have structured your mortgage. That's between you and the bank. Funnily enough the ATO would be better off as your interest would be (technically) lower and therefore lower expense claims and higher tax payment. I'm happy to be proven wrong if you can show me ATO's stance on this - I accept that he may get in trouble with the bank (unlikely) but not the ATO.

      • born2reign on 30/01/2019 - 10:30

        how hard is it to spot someone on a PPOR home loan claiming 1000's of dollars in investment deductions and tax refunds

        it's just common sense, and asking to be caught… it is also ethically and morally wrong too :P

  • HeWhoKnows on 21/03/2017 - 20:54

    Dont change anything except mailing address for notices

  • fredblogs on 29/01/2019 - 21:10

    Any risk in changing the mailing address for notices?

  • nickyd84 on 12/02/2021 - 13:37

    Came here as I was going to ask the exact same question.

    Was going to do the same thing, except I was going to use equity from this apartment with CBA to purchase a bigger apartment (which I will then move in to and rent this one out). Was going to do this all through CBA, but I guess I can't if I wanted to keep this one on an owner occupied rate!

    I could still unlock the equity if I went with a different bank, right?

  • mini2 on 12/02/2021 - 19:03

    Say nothing. They don't particularly care if you don't default/add another mortgage forcing them to re-visit your entire file if everything's with the same bank.

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