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  • David Thiu
    Participant
    @david-thiu
    Join Date: 2017
    Post Count: 75

    Hi there,

    Just wondering if you can provide more information with regards to ‘Irrevocable Mortgages’ to protect your assets…

    – What is an Irrevocable Mortgage?
    – How do you utilise this to protect your equity?
    – What are the benefits?
    – What are the drawbacks?
    – How does it compare to having a trust?
    – What are the setup costs?
    – Are there any ongoing costs?
    – Is the setup cost per property or can it be for your entire portfolio?

    Cheers,

    David

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Sounds like something that is from America.

    Who would be the mortgagee and what would it secure? Where did you hear about it? was the person legally qualified and licenced?

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    David Thiu
    Participant
    @david-thiu
    Join Date: 2017
    Post Count: 75

    It was from one of Mark Rolton’s Videos, and his adviser is a qualified and licensed lawyer based in Brisbane…

    Basically he mentioned that if you had a property worth $1M, a bank might have a loan of $400K, and then you would have $600k exposed equity, which you could somehow protect using an Irrevocable loan…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    I see – it is just a marketing term. More commonly called the ‘gift and borrow back strategy’.

    My answers to your questions below:
    – What is an Irrevocable Mortgage?
    A name for a strategy where a related entity places a mortgage over the property of another entity. It is not really ‘irrevocable’.

    – How do you utilise this to protect your equity?
    Set up a new discretionary trust which you then contract with and it takes a mortgage over title of your property to secure its interest.

    – What are the benefits?
    Improved Asset protection on bankruptcy of the individual mortgagor.

    – What are the drawbacks?
    Complexity
    Not 100% effective, especially in the early years.
    Estate planning issues on your death
    costs

    – How does it compare to having a trust?
    A trust is needed.

    – What are the setup costs?
    depends – probably around $5k for the average person.

    – Are there any ongoing costs?
    Generally not

    – Is the setup cost per property or can it be for your entire portfolio?
    You could have an equitable mortgage over all your assets, but a real legal mortgage would need to be registered over each property to improve priority to the mortgagee.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    David Thiu
    Participant
    @david-thiu
    Join Date: 2017
    Post Count: 75

    Thanks Terry, that makes things a bit clearer. Does the entity need to be a Trust, or can it be a Company?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    It could be a company but who would own the shares?

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    David Thiu
    Participant
    @david-thiu
    Join Date: 2017
    Post Count: 75

    Interesting point you’ve brought up Terry

    I assume the owner of the property would own the shares, or maybe a relative of the owner…

    But then instead of your Equity being exposed, your shares in the company would be exposed…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    You should get legal advice on who should be the mortgagee – I would not recommend a company generally.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    David Thiu
    Participant
    @david-thiu
    Join Date: 2017
    Post Count: 75

    Sure thing Terryw…

    I don’t have much assets at this stage.

    Was just asking out of sheer curiosity.

    But I definitely know who to go to in the future for Asset Protection Advice ;)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Start off with the end in mind.

    You could gift a small sum to a trust and borrow back with the trust taking a mortgage to secure its debt. Later on the trust might lend you more money which increases your debt to it. The longer this happens the stronger it will be.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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