How Your Property Can Finance Your Child’s First Mortgage

It would have been easy for your child to break into the property market if prices were falling or at least stable. Sadly, the cost of home ownership keeps soaring every day, yet, it’s time for them to leave your nest and start their own family. So what can you do? Here are some ways you can help them achieve the Great Australian Dream of owning their first home.

Being their guarantor

If you own your own property with equity built up, you could decide to act as a guarantor (some lenders will refer to this as a ‘family pledge’) for your child’s first mortgage. As a guarantor, you will be expected to secure the loan and pay any missed mortgage payments if your child defaults. Acting as a guarantor means your child won’t have to pay the Lenders Mortgage Insurance (LMI), saving them a significant amount, but it can also speed up the process of buying a first home and even increase the amount that is able to be borrowed.

Of course, this can be a risky option, effectively placing the burden of a loan on your shoulders should anything go wrong. As such, you could choose to guarantee only a part of the borrowed amount, such as the first 20%, after which the borrower is responsible.

Using your equity

Increasingly becoming a more popular option, you can use mortgage refinancing in the shape of an equity line loan or equity access loan to help fund the deposit for your child’s first home. In turn, your home acts as the security on the new loan.

Your property’s value may have risen since you took out a mortgage, for instance as a result of renovations, which could cause your equity to increase too. A reputable lender will work out the loan to value ratio (LVR) and help you retain an amount as security. What’s left after refinancing can go towards helping your child get on the property ladder.

Before deciding to act as a guarantor or release equity from your home to fund your child’s first property, it’s best to compare the loan rates that are available for a first home mortgage or refinancing. At Pearl Financial, we take into account the unique situations of our clients and recommend the best solution. Call us today if you need an investment property loan for you or your children.

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Author: Shane