Hello All,
Fairly new to this forum and my fiance and I are also looking to buy our first home. We are looking to go for a Family Equity loan using the equity from my parents home as the deposit security. As we are doing this for the first time I thought I would ask for some advice on this type of loan and home loan advice in general, such as pros and cons of such loans? to fix the interest rate or stick with variable? any recommended starting points or websites can be referred to for first timers?
Apologies if this is a common topic on here but as we our brand new to the task of buying property it is very daunting but are keen to take advantage of low interest rates and affordable prices.
Thanks in advance.
Craig.
Hi Craig
pro's are that you can borrow often up to 105% of the purchase price, you avoid paying lmi as the overall lvr is 80% and no need to save for a deposit. a limited guarantee is taken over your family/parents home so they're only liable for that amount and can usually apply to have this released after a certain amount of time. if your parents home has a mortgage they'd need to refinance to the lender also. there are some good family equity loans around. here's a link to Rams fast Track product as a starting point http://www.rams.com.au/default.asp?page=/home+loans/all+our+products/rams+fast+track
let me know if you want to discusscheers
One of the downsides of the FG style loan is that the your parents propery cannot be used for for further borrowing during the guarantee period unless they use your lender and if they have an original loan against the property they need to refinance.
If you take an interest only loan then you are relying solely on the capital growth to enable the guarantee to be released.
There are a couple of options and you would be better off to seek the advice of an independent mortgage broker who can look at the whole scenario for you.
Richard Taylor | Australia's leading private lender
Thankyou for taking the time to answer. As far as my parents having to refinance, if we take out the home loan through the same bank would there be anything they have to change or fees to pay in relation to their loan?
Cheers
Firstly need to make sure that their Bank offer such a product (not all lenders do) and secondly Yes could be several things they have to change.
You parents may have a Line of credit or redraw facility or even have the loan cross collateralised with other securities and these may need to be cancelled or restructured. Their income may not be sufficient for them to be able to guarantee the additional loan amount.
I prefer a structure where your parents lend you 20% deposit and you then use as deposit and avoid LMI that way they can carry on with their borrowings and are not answerable to your lender.
Richard Taylor | Australia's leading private lender
Ohhs posted twice
Richard Taylor | Australia's leading private lender
Thanks again for your reply, as far as I am aware they have only refinanced their home loan once or twice to purchase a car and some kitchen renos. If it wasn't for these the loan would have been paid out a few years ago as they have had the loan since the early 70s. We are wondering if we would be able to take out a home loan through the same bank, which both my fiance and I also bank with, and my parents would be able provide a guarantee for a deposit using a nominated amount of their equity say 10 or 20% (like a guarantor on a personal loan) and we would be able to borrow the full amount avoiding or even reducing the amount of mortgage insurance payable? Basically my parents are willing to help out as long as they don't have to change banks, refinance or spend more money, does this sound like a possible scenario? Also metioned in a previous reply was the fact that my parents would not be able to use the property for further borrowings during the time of the guarantee. My question in relation to this is does that mean no further borrowings at all? or lets say (hypothetically) they have 10,000 left on loan and 90,000 in equity, they nominate 10,000 equity as a guarantee to us but they can still borrow against the remainding 80,000 equity if needed?
Hope that makes sense
Thanks in advance
Craig.
Yes they can on the basis the lender can show they can service the whole debt.
My question in relation to this is does that mean no further borrowings at all? or lets say (hypothetically) they have 10,000 left on loan and 90,000 in equity, they nominate 10,000 equity as a guarantee to us but they can still borrow against the remainding 80,000 equity if needed?
Richard Taylor | Australia's leading private lender
Thanks for the response. I am also wondering if anyone out there knows if the following question from my earlier post sounds possible?
We are wondering if we would be able to take out a home loan through the same bank, which both my fiance and I also bank with, and my parents would be able provide a guarantee for a deposit using a nominated amount of their equity say 10 or 20% (like a guarantor on a personal loan) and we would be able to borrow the full amount avoiding or even reducing the amount of mortgage insurance payable? Basically my parents are willing to help out as long as they don't have to change banks, refinance or spend more money, does this sound like a possible scenario?
Cheers
Yes as long as their existing lender offers such a product.
Richard Taylor | Australia's leading private lender
Hello All,
Firstly thanks again for the advice so far, really helpful.
I am hoping to get some more advice, we have another option with regards to above and that is a family member is willing to put up a cash deposit for us in the form of a guarantee. I am wondering what options we have with this, is it possible to put this cash into say some sort of account as a guarantee on the deposit until such time we have enough equity in our home to release it back to the family member like what would happen in a family equity situation? or is it only possible to take it as a gift then when we have enough equity in our own place, refinance the loan and pay the family member back? any other suggestions?
Thanks for your time.
Craig
Hi Craig
Don't think any lenders will be keen to lend on the basis of a guarantee securred by a deposit.
The easiest option is to probably enter into a loan agreement with the relative. have everything drawn up properly by a solicitor. And remember, a gift is not usually refundable!
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
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