Parents as guarantors: end your child’s first home mirageBy Dave Fleming : 17 December, 2018
They grow up so fast. One minute they’re nagging you for a dollhouse, the next, it’s for help buying a two bedroom unit in an up-and-coming suburb. If you always find it hard to say ‘no’ to your kids, here’s how to say ‘yes’ the right way.
You’ve probably heard your children complain about how hard it is to crack into today’s property market.
And smashed-avocado shenanigans aside, they do have a point. It is tougher nowadays.
With the property market constantly on the up-and-up, reaching that 10% to 20% deposit can feel like a mirage for your child.
The good news is that you can help them obtain that slightly out-of-reach home loan by using the equity in your property.
How it works
Banks find it risky to lend to borrowers who have an unstable job or low deposit. But they do allow seemingly more-reliable immediate family members to guarantee a home loan.
Guarantor loans have huge benefits for your children, including:
No deposit required: If guaranteed against a parent’s property equity, your child may be entitled to borrow 100% to 110% of the purchase price of a property. That means no deposit is required. Instead, your child can focus their savings on white goods and repayments.
Discounted interest rates: Guarantor loans can come with reduced interest rates and we can help you secure a great deal.
No Lenders Mortgage Insurance (LMI): Your child will likely not need to get LMI because the equity is usually enough of a guarantee to protect the lender against losses.
Things parents should keep in mind
Sounds great, right? But it’s not entirely without its risks. Here’s what you as a parent need to keep in mind:
Safeguard your credit report: Be sure that you can honour the repayments in case things go awry and your child is unable to pay. You should be positive that they will uphold their end of the bargain, but also prepare for the unexpected.
Financial risk versus emotional benefits: Going guarantor makes you financially responsible if your child defaults on payments. The emotional benefits, however, can outweigh the risk.
Impacts on your borrowing capacity: Future credit providers will take into account the guaranteed loan. They will assess your borrowing capacity based on it, and whether or not you are an active participator in the repayments of your child’s mortgage.
How we can help
We understand that when it comes to your children, it can be near-impossible to take your emotions out of decision making. That’s where we come in.
We can help you calculate whether or not you have the equity to make this work, and assess your child’s financial capabilities to see if they’re in a position to be making repayments.
We’ll also help you understand your legal liability as a guarantor before helping you make the big decision. So give us a call today.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.