The burden of HECS debt; supply of affordable homes and difficulty of saving while also paying rent is seeing “Millennials” lean on parents to save on Loan Mortgage Insurance (LMI) and qualify for more flexible savings pattern requirements.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
On a loan amount of $400,000 it can save around $14,500 in LMI premium.
I get it: we want to assist our children in any way we can, but let’s be smart about this. Loans can be structured in various ways. Ensure the loan is split in two – both being in your child’s name.
One is set at 80 per cent of the value of the new purchase using that property as security; and the other is using the new property and yours as security, with your guarantee being limited to the small portion of the debt.
This also gives you the ability to have different loan terms on each loan so your property can be released ASAP. This is ideal because you can bet once you have assisted one child, the next child will be lining up for the same assistance!
You can bet once you have assisted one child, the next child will be lining up for the same assistance!
As guarantors you need to receive independent legal advice to ensure you understand all risks involved. For example, if you decide to sell your home before the debt has been sufficiently reduced or children’s home has increased in value to the point that it can stand alone, it could negatively impact you or your children.
Possible solutions: you contribute some of your sale proceeds to reduce the debt; your children pay LMI at that point or very worst-case scenario; your children sell their home as there is not enough equity to stand alone without your guarantee.
The other concern is, if (through unforeseen changes) your child stops repayments to the loan, you will need to take over, otherwise your property and credit rating are also at risk.
Going forward this debt will be a liability to you. Not only are you losing equity, you are also reducing your own borrowing capacity for any future lending. Lots to think about. Even though this age group love technology and online services, most agree that a home loan is different. As long as everyone makes informed decisions and loans are set up suitably, this can be a great way to assist your children to get a foot into the property market!