A family guarantee home loan (also called a Family Pledge) can be just the right solution to help first home buyers struggling to save a house deposit to get into the property market. It is also a great solution for parents looking to give their child a helping hand to get out of the family nest!
There are many advantages with this type of home loan for all family members involved.
For the parents, it can be a way they can help their adult children enter the property market without having to physically gift them any money, but instead offering a portion of their own home equity for a limited time frame as a way to guarantee the home loan.
For the applicants as well as no longer needing a deposit, they will also save thousands of dollars by not having to pay Lenders Mortgage Insurance (LMI) over the life of the loan.
An example of how it works…
Here’s an example of a typical Lenders Mortgage Insured home loan versus a Family Guarantee home loan for the purchase of a new home with a total cost of $400,000.
|Mortgage Insured Loan||Family Guarantee Loan|
|Typical minimum deposit required:||$35,000||Nil|
|Estimated LMI premium added to loan:||$10,000||Nil|
|Estimated EXTRA interest over 30 years due to LMI:||$9,326||Nil|
Using this example, you could save your child the original $10,000 LMI premium plus the $9,326 extra interest on the premium. A total saving for your child of $19,326 in unnecessary fees PLUS they can secure the loan without $35,000 or more in saved deposit!