Family Pledge & Guarantee - Mortgage Adelaide

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Family Pledge & Guarantee

If you’re finding it hard to come up with a deposit for your next home or investment property, you should consider a Family Pledge or Family Guarantee loan.

Saving for a deposit can be tough, particularly with the added costs of stamp duty, legal fees and other expenses. And mortgage insurance can be very expensive, especially if you’re looking at a 100% lend.

Family Pledge makes it easy for a family member to guarantee part of your home loan – with the added peace of mind that they can set the guaranteed amount.

Here are some more handy hints:

For the Borrower:

• With a Family Pledge loan, you can borrow up to the full purchase price of the new property, plus additional funds to cover the costs associated with buying, such as stamp duty, legal costs and other expenses.

• In some instances, you can borrow to pay out other debts not associated with buying of the home.
• This all depends of course on how much your family member is willing to guarantee, and you must be able to meet repayments for the amount you wish to borrow.
• A Family Pledge loan allows you to avoid paying large Lenders’ Mortgage Insurance costs
• With a Family Pledge loan, you’re eligible for First Home Owners grant and are able to take the majority of products offered by the lender

For the Guarantor:

• As a parent or family member, you can limit the amount of the guarantee, rather than opting for a traditional “open” guarantee for the entire loan amount.
• You can be released from the guarantee much sooner than normal.
• As a guarantor you can provide servicing support also.

With increasing property prices, Family Pledge or Family Guarantee home loans are becoming very popular and can be a great way to get into your home without having to save the required deposit for a standard loan.

How Family Pledge/Guarantee works

Generally, when you borrow more than 80% of the value of the property, it’s deemed as a high risk. When this occurs, the lender will take out Lenders’ Mortgage Insurance to cover themselves for possible loss.
The higher the risk, the higher the Lenders’ Mortgage Insurance premium will be. It’s important to remember, Lenders’ Mortgage Insurance covers the lender, not you.
By taking out a Family Pledge/Guarantee you will avoid the Lenders’ Mortgage Insurance cost.

Let’s take a look at an example:

Say you buy a property for $300K and want to borrow the full amount at $300K. Your parents guarantee $80K. So,
The loan would be $300K
The security to the lender would be $300K (new property) + $80K Pledge amount from family residence = $380,000
$300k divided by $380k = 79% Loan divided by Value Ratio (LVR)

With a loan at 79% LVR, Lenders’ Mortgage Insurance would no longer be required, offering you significant savings.