A Parental Guarantee
Have you experienced the hope of buying your first home only to lose it at the point of sale by another Investor who are just looking to build up their property portfolio? Is this you, has this happened to you or to any of your loved ones? Sounds familiar?
We are constantly reading that first home owners are being forced out of the market. Often they are beaten to the punch by investors, other times, their limited savings mean that they have to borrow approaching 95 per cent of the value of a property and they have to pay Lenders’ Mortgage Insurance – which adds to their debt levels.
For many parents however, there is a possible salvation – a parental guarantee loan. A parental guarantee enables the equity you have built up in your own home to fill in some of the gaps where your kids are falling short in their home purchase.
Provided that the bank determines that your children can make the repayments, there are many benefits of the bank lending with a parental guarantee. For example your son or daughter can;
- compete for higher-value properties.
- potentially borrow all the costs of the purchase – such as stamp duty.
- avoid paying Lenders’ Mortgage Insurance.
The image below is how CBA offers its parental guarantee loan. Many banks offer such loans – and, in some instances, it does not have to be mums and dads that offer the guarantee.
Graeme Salt – National Client Finance Manager, Chan & Naylor Finance Australia
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.