A Closer Look at Family Guarantee Loans

30 June 2015 M'OR Mortgage Options

Wanting to buy your first home, but don’t have the deposit required?

With increasing house prices, we’re seeing more First Home Buyers struggling to save the necessary deposit to purchase their first home.   

If you’ve found yourself in a similar position, you may be able to get into the market, sooner than you thought, by using a family guarantee loan.

So what is a Family Guarantee Loan?

A family guarantee loan works by using equity in your parent’s property to help secure your new loan. This means the new loan is secured by your new property, as well as a portion of your parent’s home (or other property).

You’ll still need the income to support the loan repayments yourself, as well as parents (typically) who are willing and able to assist, meaning they’ll need to have enough equity in their property.  

How much additional security you’ll require for your purchase, and how much equity this translates to for your parents, depends on the purchase price, costs and how much you are looking to contribute to the purchase.

How can a family guarantee loan assist?

Advantages

You can get into the property market sooner. By providing additional security, you may be able to borrow more and purchase a property with additional features. The amount of savings you need to contribute can be reduced (or eliminated entirely), allowing you to conserve your cash for renovations or improvements to your new home. The additional security can help you to avoid Lenders Mortgage Insurance (LMI) by keeping the overall borrowings at ≤80% of the value of the property – this can represent significant savings.  You have the ability to release the guarantee over time, by building up equity in your own property, reducing your loan amount, or both.

Disadvantages

Parents providing the guarantee may be liable for the amount guaranteed, should you (as the borrower) fail to meet your loan repayments for an extended period of time.  In our experience, this is extremely rare, but something everyone needs to be aware of. Whilst the guarantee is in place, it reduces the guarantor’s ability to use their equity for other purposes.

If you would like to catch up with one of our Mortgage Professionals, to work out if a family guarantee loan is right for you, don’t hesitate to contact us. 

MO’R Mortgage Options are a local family owned business under the guidance of Michael O’Reilly.  Michael and his team of professionals have extensive experience in the mortgage industry and provide exceptional service to their clients.  It is for this reason that MO’R Mortgage Options are our trusted and preferred recommendation to our friends and clients.