Guarontor problems

G'day Judd!

Have you ever heard of a family pledge?: Most people haven't so here goes!
A family pledge is where, for an example, a young single or couple are trying to buy a first or subsequent property but either lack equity in an existing property or simply don't have enough of a deposit. Here comes the magic of a Family Pledge. In the above example, young people have older relatives such as parents, uncles and aunties who usually have good equity in their PPOR or an investment property. Going guarantor is not the best way to go because if the kids default then the parents and reli's can end up sacrificing or losing what has taken them all their working life to own – their home. A Family Pledge completely avoids the need for guarantors! Instead, what the parents or rel's do is 'pledge' at least 20% of the purchase price in a short-term loan (if they need to borrow) and usually for no more than 5 years OR, they put up only 20% of the equity in their home or IP. This structure does many amazing things for ALL concerned.
1. The parents or relatives are NOT responsible for the whole debt and their liability is restricted to only that 20%. If the kids default, the lender usually negotiates a personal re-fi with the family 'pledger' and go after the kids for the rest.
2. The banks like this structure because it means that the kids have instant equity in the property of at least 20%, giving more flexibility and room to move if the 'wheels fall off'.
3. But here is the KICKER Judd – NO, I repeat, NO LMI Lender's Mortgage Insurance! The LMI on just around a $300K home loan will start at about $8500 BIG ONES!

There you have it Judd. I hope this bit of info is helpful to you. <moderator: delete advertising>
Good luck with it!
CHEERS!

TC

Hi Judd,

Seems to me as if you are in a 'hurry' and you are going to have a high LVR across your whole portfolio.

I would not be adverse to you sitting and waiting for a while and getting some mroe financial wherewithall behind you rather than constantly pushing the envelope as you currently seem to be.

PI is not a race.

It definitely sounds like you are trying to get maximum potential upside while exposing your parents to huge potential downside. You should make your first priority removing your parents risk in your investments before even looking at expanding your own empire.

Also note that when your Aunt started building up a portfolio, conditions and prices were very different. What was working then won’t work now.

This is exactly what I was thinking. Being a guarantor is extremely dangerous and with little benefit. taking on extra debt you are making this even more dangerous to the guarantors. I would work on taking them off as guarantors.

Yes. get your parents off as guarantors for your first home…..and this will give you a bit more leverage power in the future as well.

Your property need to increase in value for your parent’s to be removed, a new valuation needs to be ordered ( ~$250).

P.s since it was P and I – i would expected usually within 2-3 years you would be able to remove your parent’s off.

Regards
Michael