Home Loan Repayment
Nila Sweeney

Financing a house boat purchase
Q. We are looking to buy a houseboat in Queensland to live on, rather than for investment purposes. Is it possible to get a mortgage on a houseboat? If so, are the requirements any different to a normal house? Thanks, Bruce

A. Hi Bruce, thanks for your question, it is an unusual one indeed! Miriam Agnos, personal mortgage advisor, Smartline, and Martin North, managing consulting director and executive general manager, Fujitsu Consulting, have offered their thoughts.

Response from Miriam Agnos:
"I do see the appeal of living on a houseboat. You can pull up anchor and move on whenever you decide to change scenery – or your neighbours! I wish you the best of luck with your venture.

However, houseboats are not considered 'bricks and mortar', the usual security required in residential lending.

If you were buying the houseboat as an investment and entering into a lease agreement with an operator or running an established houseboat business yourself, you may be able to finance it as 'equipment finance'. It would be an arrangement similar to a chattel mortgage, which means you would be looking at a fairly short loan term, say seven years, and most likely a principal & interest form of payment.

This kind of loan is priced on a caseby-case basis but the interest rate would be quite high compared to standard residential rates, meaning much larger loan repayments.

But as an owner-occupied houseboat you would be hard-pressed to find finance, even from private lenders. If you did find a lender, I would imagine the lending terms would be quite prohibitive."

Response from Martin North:
"A lender will consider a number of factors when agreeing to make a loan and will often be guided by a set of policies designed to ensure the bank does not lend in a high-risk situation.

So, factors like the value of the property versus the size of the loan, the life of the property compared with the loan, and whether the asset can be moved or stolen will be issues. In addition, land and property on land can be located on a register that confirms whether there are other interests in the property. Putting all this together I suspect that many lenders would decline to make a loan on a houseboat. Its life is shorter than bricks and mortar and there is generally no mechanism to register a secured interest on the vessel. However, the bank might consider an unsecured loan, which could be more expensive, as banks make boat loans frequently. You could also investigate specialist lenders with a smaller LVR."

Finding equity
Q. I have been retired for about four years. Before I retired, my wife and I accumulated a portfolio of 14 properties located in Darwin and South East Queensland (Brisbane and the Gold Coast). The current market value of the portfolio is about $7,200,000, with mortgage loans of about $4,800,000.

What are the best ways to access the equity we have in the portfolio without selling some properties? My wife is still working. Regards, Peter.

A. Hi Peter, thanks for your question!
Margaret Lomas, founder of Destiny Financial Solutions, has offered a few solutions to your query:

There are a number of ways you can access the equity in your portfolio and it will be up to you to do the sums to establish which one is the best for you. Here they are in a nutshell.

1. With rental yields in both Darwin and South East Queensland still on the rise, I expect that you would see a net return in the coming months of approximately 4% (that is the amount you would receive after all costs, interest and tax deductions). If we consider that you own $2,400,000 of this portfolio debt free, then your portion should earn a net income, after you have paid costs and claimed all tax deductions, of $96,000 per year. Depending on your income today, this may be enough, and it will attract little tax if split between you and your spouse. We would expect a conservative 2% per year growth for the next 10 years (probably more), increasing the portion you own to $4,500,000 after 10 years which, at 4% yield, would increase your annual income to $183,000, even if you didn't repay debt during that time. Even at a net 3% yield this puts your income at $72,000 and $137,000 respectively. This is an ideal option as you maintain ownership over growth assets that will return an increasing income to you.

2. Sell enough to repay the debt and live off the rents from the rest. Your yield will be higher (no interest payments), say around 5%, but you will pay capital gains tax. This will mean that what you have left over will be lower in value than what you own, debt free, now.

3. Sell all of it and invest the proceeds in diversified assets. The amount you receive will be significantly reduced by capital gains tax, and, let’s face it, now is probably not the best time to tie up your entire wealth in paper-based assets!

4. Borrow against the equity each year for 'money for living'. The theory is that as values rise there is more for you to borrow against. I am not a fan of this type of reverse mortgage as with high interest rates and the property market entering a low growth phase, you will definitely eat into equity along the way. Your age and health count when you are considering this. If we said you needed $100,000 per year and the net cost of this strategy (interest rate less expected growth) is about 5% a year, then your $2.4m in equity has about 22 years of life! However, by using this scheme your income would not increase and may even decrease over time.

Get some good advice and run the numbers first – if you can afford to stay in, then this option is probably preferred.

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