Family Pledge & Family Guarantee Loan
Saving enough for a deposit can be difficult particularly with the added costs of stamp duty, legal fees and other expenses. There’s also Mortgage Insurance to consider which can be very expensive, especially if you’re looking at a 100% lend.
If you're keen to get into your own place, ask about Family Pledge/Family Guarantee Loans. As its name suggests, it allows a family member like a parent to use the equity in their home as security on your new home loan. This means you may be able to avoid paying Lender's Mortgage Insurance.
How Family Pledge works
Your family members can use their own home's equity or equity from an investment property to provide additional security for a portion of your loan amount. This solution reduces your loan to value ratio (LVR) and can also save you a significant amount of money by reducing or even avoiding the need to pay Lender's Mortgage Insurance (LMI).
The Family Pledge/Guarantee can be limited to a specific amount, which helps provide certainty and allows the property to be released earlier than guarantees which cover 100% of the loan amount.
Generally, when you borrow more than 80% of the value of the property, it’s deemed as high risk. When this occurs, the lender will take out Lenders’ Mortgage Insurance to cover 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 may avoid the Lenders’ Mortgage Insurance cost.
Let’s take a look at an example:
John is planning to purchase a $300,000 property with a $15,000 deposit Loan to Value Ratio (LVR) of 95%, which means Lenders Mortgage Insurance (LMI) would be payable.
If John’s parents agreed to provide a family pledge guarantee of $56,500 as an additional security, the LVR would reduce to 80%.
This would result in the LMI premium requirement being waived, saving John up to $5,800*.
*Subject to Lenders usual terms & conditions, LMI charges, total borrowings & guarantee amount
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.
You must be able to meet servicing requirements for the total amount you wish to borrow.
A Family Pledge loan may allow you to avoid paying large Lenders’ Mortgage Insurance costs
With a Family Pledge loan, you may be eligible for First Home Owners grant (refer to First Home Buyer page for more information) 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.
Call one of our Brokers today to discuss Family Pledge/Guarantee options.