April 25, 2017
As I attended at the dawn service this morning and looked up at the day as the sun started to emerge I had an intense feeling of gratitude. We truly do live in the lucky country. In Australia we are fortunate to be free from conflict and not living daily with war like so many people around the world do.
Today we commemorate ANZAC Day and remember those who at one point in their lives wrote a blank cheque payable to their country for an amount up to, and including, their life. As the bugle sounds we give thanks to those soldiers, sailors, airmen and medical staff who have afforded us the freedom we have today
Our hopes and dreams for our families can become a reality in a country where unemployment is low, wages are fair and property ownership is still achievable in a number of ways. Every year I am overwhelmed by the number of veterans who march but more importantly the family that they have either by their side marching or in the crowds supporting. We are in incredibly giving nation.
It is reported that housing affordability can still be a challenge for first home buyers, particularly with the number of interest rate rises in recent months Banks also still have a tight rein on lending criteria, so you will be needing 5-10% deposit saved to start your home ownership journey. There is another option you may not have considered.
The family equity home loan
A family equity home loan allows your parents to provide a guarantee in support of your home loan application by using equity they have in a property they own property as additional security. Using their property to support the loan makes them Guarantors
The guarantor can guarantee all or just a part of the home loan. From both parties’ point of view, the smaller the guarantee the better, to minimize the Guarantors risk in the event of default. Having a budget to manage your expenses and repayments is prudent as if focusing on repaying the Guarantor portion of the loan as quickly as you can. This will build up your equity sooner, so that you can release the guarantor.
Get your head around LMI and LVR
Having a guarantor means that you can borrow more money than the bank would lend you in your current circumstances, or that you can avoid paying Lender’s Mortgage Insurance (LMI). LMI kicks in when you borrow 80% or more of the property’s value. LMI protects the lender against making a loss if you default on your home loan and they have to repossess the property, and end up selling it for considerably less than they loaned against it in the first place.
For example, say you want to purchase a $300K property and borrow $285K. That gives you a Loan to Value Ratio (LVR) of 95%, which will mean you have to pay an LMI premium. With a guarantee of $60K from your parents as additional security, the LVR would reduce to 79%. So, you won’t need to pay LMI (saving you a few thousand dollars) and the banks may be more likely to loan you the money because your LVR is lower.
If you would like to speak directly with George Cremona, Mortgage Choice Broker, please call to see how family Equity Guarantee can work for you or you can support your family members.