Helping your children leave the nest
Rising living costs and economic uncertainty is making it increasingly difficult for young Australians to enter the property market and purchase their first home.
Parents concerned about the challenges their children face with saving for a home deposit, often wonder how they can help without having to go into debt or providing a large sum from their hard earned savings.
The good news is Beyond Bank Australia offer alternatives to the traditional mortgage that assist both parents and their children overcome the hurdle a deposit can create.
Parent equity home loans allow young borrowers to apply for a home loan with little or no deposit by engaging their parents as a form of insurance.
We originally introduced the loan so parents could help their children purchase a property by using equity in their own home to guarantee for a portion of the loan. The amount of money they are willing to guarantee, determines how much the child can borrow.
This could mean that Beyond Bank funds up to 80 per cent of the value of the property and the parents use the equity in their home to guarantee the 20 per cent remaining – allowing the child to borrow 100 per cent of the purchase price, plus an additional 10 per cent to help with associated costs of the purchase, such as stamp duty and other fees.
Aside from making it easier to get a home loan, a significant benefit a parent equity home loan offers is that the child can avoid paying thousands of dollars in mortgage insurance, because the parents act as the insurance.
However, if you’re considering this type of loan, it’s important to base your decision on the realities of your and your child’s financial situation, rather than emotion.
Consider factors like your child’s ongoing ability to repay the loan and if anything unforeseen were to happen, would you be able to meet the repayments without putting yourself under unnecessary financial pressure?
It’s also worth remembering that parents are only held as guarantor until enough money has been paid off the loan or when the property value increases. So for example, if you are guaranteeing 20 per cent of the purchase price, the guarantee will be removed once that amount has been repaid or the value has increased.