I'm in the very fortunate position where my parents have offered to give me the deposit required for my first property. However, due to the economic down turn, their shares have depreciated in value a lot. They would still give me the deposit required, but don't really want to sell the shares at the current price.
So what I thought (don't know if it works), is that they could become guarantors for my loan and I'll borrow 100% from the bank. There are a few problems with this idea. Firstly, I don't know whether my parents would agree to this, but we will discuss it on the weekend. Secondly, the bank pre-approved a loan for $400k, so I don't know whether they'll loan me the $510k required for the property that I'm eying. And finally, I'm not entirely sure whether I'll be able to negatively gear the entire loan if my parents are guarantors. Any ideas?Just for your information, the property will cost me $510000 and return $570 per week, so I won't be out of pocket all that much.
Perhaps your parents could borrow the money, secured against their own assets, and give you that money for a deposit? In this way they are only "exposed" to your position to the extent of that loan rather than guaranteeing the whole loan.
Guarantors don't have any effect on you claiming anything. So you should be able to claim the interest on the whole loan amount (if the property is rented out).
You parents will be givening an equity guarantee, so you will still have to demonstrate to the bank that you can service the whole amount to be borrowed. They will also have to put up their property as security so it generally (but not always) has to be with the same lender as your loan. It would probably be safer for them if they just lent you the money.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You could also borrow 80% against the purchase property. Followed by a loan for 20% against your parents property. The 20% can be in your name however will need a guarantee from your parents (as it is secured against their house or IP).
As both loans are in your name you will get all tax benefits / or any gov grants.
By doing it this way then loans are in your name. Your parents risk / guarantee is limited to the 20% loan.
Once the property has increased in value you can refinance the 20% against your property thus releasing the guarantee in full.
Banker
Terryw wrote:Guarantors don't have any effect on you claiming anything. So you should be able to claim the interest on the whole loan amount (if the property is rented out).You parents will be givening an equity guarantee, so you will still have to demonstrate to the bank that you can service the whole amount to be borrowed. They will also have to put up their property as security so it generally (but not always) has to be with the same lender as your loan. It would probably be safer for them if they just lent you the money.
parents income can also be used for servicing; you can use guarantee for security, servicing or both.
or just get the parents to onlend the 20% to you.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Re the 20% loan. CBA and Westpac will both do these on a second mortgae: same price and interest as a first mortgage; albeit a deed of priorty is required. Terry is correct re you can just get them to lend you the fund. Either way works.
Hi Banker
I didn't think there were many lenders these days that allowed income guarantees from parents who are not on title.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I have 2 on the go at CBA. Both approved (one approved yesterday). I think Westpac also do.
Restricted to spouce or parents. They are becoming more and more popular. Also wealthy parents can use their income to assist their kids; at the same time get the FHOG. One of the ones I approved had an applicant in full time study; the parent will make the entire repayments until the son can afford to take it over.
If parents were on title they get no gov grant…
Sounds like we should be referring all our deals down to Banker at CBA and charging a fee for the deal.
Richard Taylor | Australia's leading private lender
Richard:- check both CBA and Westpac. They both offer this through the broker channel…
Wasnt thinking so much of this type of deal more the out of the box deal.
Richard Taylor | Australia's leading private lender
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