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Analysing the benefits and drawbacks of a company & trust home loan will help you understand whether it fits your long-term goals and ensure that the decision aligns with your objectives.
Speak with our mortgage brokers, and we’ll help you make well-informed decisions and prepare a strong application to get financing with your chosen lender successfully. Every detail of your trust loan, along with all paperwork and considerations, will be considered to maximise your chances of getting approval and securing your investment.
With over 1000+ loans approved, we know how a trust loan works and which lenders will approve your trust home loan application.
What Are Trust Home Loans?
Trust home loans refer to home loans that are taken out by a trust (a legal entity), rather than by an individual (personal name). A trust is a legal arrangement where one party (the trustee) holds and manages assets for the benefit of another party (the beneficiaries). Trusts are commonly used for asset protection, tax planning, estate planning, and investment purposes. You will typically need a trust home loan if you need funding for your property purchase in a trust name.
There are many different types of trust structures, the most common structure used for lending are discretionary/family trusts, unit trusts, hybrid trusts and bare trusts.
It is important to speak to an accountant to understand the structures and whether they are suitable for your own situation.
Discretionary & Family Trusts
This is the most common trust structure used to invest in property. The trustee takes out the loan on behalf of the trust beneficiaries who are also the guarantors.
In a family trust, a trustee manages the assets on behalf of the beneficiaries. The assets in a family trust are owned by the trust itself, not by any individual. The trustee handles the distribution of any income generated by the trust at the end of each financial year. A family trust can borrow and invest similarly to an individual. However, any assets requiring trust funds must be held within the trust.
Benefits of Discretionary & Family Trusts
Asset protection – Since the trust owns all the assets you place in it, these assets are protected if you face personal financial difficulties. This protection also extends to all beneficiaries of the trust. Creditors (lenders) cannot claim the trust’s assets, even in the event of personal default or bankruptcy.
Estate planning – A family trust can help you pass property from one generation to the next without the usual estate planning costs, like stamp duty. The trust deed also outlines how the assets are divided if a beneficiary passes away, preventing any internal disputes.
Distribution of profits -The trust can distribute its income to its beneficiaries annually, helping you manage your tax obligations. Additionally, you only need to pay 50% of the Capital Gains Tax (CGT) on any property the trust has held for over 12 months. However, the trust cannot benefit from negative gearing, even if one of its properties incurs a loss. Speak to a professional to find out if a family trust is suitable for your circumstances.
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Unit Trusts
Unit Trusts work a bit differently and don’t offer the same benefits as other trusts. Instead of beneficiaries, a Unit Trust has unit holders. This type of trust is great for non-related parties who want to invest together.
A Unit Trust doesn’t have discretion in distributing profits, but it still offers all the other benefits from a lending perspective.
For example, if two friends, John and Jane, buy a property together in a Unit Trust, they would each own 50 units (essentially 50% each). This means they would each receive 50% of the profits every year.
These days, a lot of lenders have amended their credit policy to not lend to Unit Trust borrowers. It is essential that you have your situation assessed in full to avoid any surprises.
Bare Trusts
A bare trust is used by Self-Managed Super Funds (SMSFs) to purchase property through a Limited Recourse Borrowing Arrangement (LRBA). The bare trust holds the property, but the SMSF is the true owner. This setup allows the trust to borrow funds to buy property within an SMSF. See our SMSF page for more details.
Hybrid Trusts
A hybrid trust has both discretionary and unit trusts features, offering flexibility for property purchases and investment management. This type of trust allows for both fixed and discretionary distributions. Essentially, part of the trust functions like a unit trust, where unit holders have fixed entitlements to income and capital. Meanwhile, another part operates like a discretionary trust, giving the trustee the flexibility to distribute income and capital as they see fit.
When it comes to buying property, a hybrid trust can allocate units to investors, providing them with a defined share of the property and its income. This setup is particularly beneficial for unrelated parties looking to invest together, as it clearly delineates each party’s share. From a lending perspective, hybrid trusts are advantageous because they combine the stability of fixed entitlements with the flexibility of discretionary income distribution, which can be useful for tax planning.
Hybrid trusts also offer significant tax planning benefits. They allow for income and capital gains to be distributed in a tax-efficient manner, potentially reducing the overall tax burden for the beneficiaries. Additionally, like other trusts, hybrid trusts provide asset protection, shielding the trust’s assets from creditors and legal claims. Not all lenders lend to hybrid trusts so it is important you speak to an experienced mortgage broker first.
Speaking to an accountant is a great starting point, however it’s important to also understand your borrowing capacity and your credit worthiness prior to spending $2,000 – $3,000 to set up these trust structures. We recommend you speak to an accountant alongside one of our brokers to ensure the structure suits you, and that borrowing capacity is evident.
Many lenders are withdrawing from trust home loans due to the additional work involved in evaluating the trust deed. This is also less profitable for most banks, not to mention that some trusts may be legally unenforceable due to limited recourse arrangements in the event of a loan default.
Moreover, the Australian Taxation Office (ATO) may also change taxation policies for trusts, potentially impacting loan borrowers and their capacity to repay the loan.
Of the lenders that do lend to companies and trusts, the assessment times are generally longer due to these types of loans being more complex than standard loans.
Yes, it is possible to obtain pricing discounts with certain lenders.
In addition to the standard documentation normally requested for a standard home loan, any loans involving a company or a trust will require additional documents such as:
- Certified copy of the Trust deeds
- Deed variations or amendments (if applicable)
- Last 2 years trust tax returns (if applicable)
- Last 2 years trust financials (if applicable)
Lenders offer up to maximum of 95% loan to value (LVR) inclusive of capitalised Lenders mortgage insurance (LMI). Speak to one of or brokers to find out which lenders offer this.
Yes, there are non-banks that can assist if you require a low-doc loan in a trust name, however, they may require a minimum 20% deposit.
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We understand everyone’s circumstances are different and we take the time to understand you and your goals. We value forming lifelong relationships with all our clients and we are fully committed to adding value every step of the way.
We know that mortgages can sometimes be complex and hard to understand. We focus on simplifying the process for you and we treat your loan as if it were our very own. Let us do what we do best so there’s one less thing for you to worry about.
Frequently Asked Questions
Partnering with a mortgage broker like Zenith can significantly streamline your home loan journey. We provide expert advice on loan products carefully tailored to your unique financial situation. By handling the legwork, comparing multiple options, managing paperwork, and negotiating better terms, we save you valuable time and help identify potential hidden fees. As we are not tied to any single lender, we can select the best loan for your needs, ensuring you secure the most suitable deal. Additionally, we proactively review your interest rate multiple times per year to ensure you remain on the most competitive rate available, maximising your savings and giving you long-term peace of mind.
Our services are provided at no cost to you. We receive compensation directly from the lender you choose once your loan is settled, ensuring that you can explore your options without incurring any upfront fees.
Each lender has unique criteria and requirements that must be met before they approve a loan. Our team takes the time to thoroughly analyse your credit history, income situation, and the specific strengths and weaknesses of your financial circumstances. This allows us to match you with the most suitable lender and loan package tailored to your needs. Our experienced professionals will provide you with comprehensive information, ensuring you have everything necessary to make an informed decision.
To begin, we’ll work closely with you to understand your goals and objectives. We’ll then gather and review all necessary supporting documents to ensure we have a comprehensive understanding of your situation. Once we have sufficient information to make a personalised recommendation, the next step will depend on the chosen lender’s processing timeline. This can vary from several weeks to a few months, which is why we strongly advise initiating the process as early as possible, especially when it comes to property purchases, where timing can be crucial.
You may not always qualify for financing from a specific bank. After assessing your unique situation, we’ll work to find you the lowest possible interest rate from eligible lenders. While interest rates are important, they’re just one piece of the puzzle. We’ll also help you consider all other fees and features associated with each loan option, ensuring you have a complete understanding of your choices and can make an informed decision that best suits your needs.
Typically, lenders require a minimum deposit of 5% of the property’s purchase price to secure a home loan. However, in some cases, it may be possible to proceed with a lower deposit. Keep in mind that if your deposit is less than 20% of the property’s price, you may need to pay Lenders Mortgage Insurance (LMI), unless you qualify for an LMI waiver. To explore your options and determine the best approach for your situation.
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