Wednesday, January 16, 2019

property 2

The real estate market can be tough for young adults, but as a parent you may be able to help...

1. Parent-to-child loan

A parent-to-child loan is when a parent lends their child money. This is a formal, legally binding arrangement, administered by an independent third party. At the start of the loan period, both parties agree to terms including the repayment amount, the schedule and the process to manage defaults. 

Benefits: You can set generous terms for your child, but your assets, savings and credit rating are somewhat protected as you are not the borrower. 

Drawbacks: There are legal implications for your child if they have a spouse and the relationship breaks down. The spouse could try to claim some of the loan proceeds as an asset of their relationship to which they are entitled. There are also tax considerations for both parties. 

2. Family guarantee

If your child does not have enough security for a mortgage, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity may cover 20% of the security and your child's new property is the other 80% - this is known as a guarantor loan. This could be a temporary arrangement until your child has paid down the loan to an acceptable level. 

Benefits: You have the option to guaranteeing a portion of the total loan. 

Drawbacks: If your child defaults, your assets are at risk. 

3. Becoming a co-applicant

You can help your child to secure a loan if signing as a co-applicant. This means you are equally as responsible as your child for meeting the repayments. The lender will consider your assets in its borrower's assessment. 

Benefits: Your child can obtain a loan with a low income.

Drawbacks: If your child stops making repayments, you are responsible for making them. If you can't make the repayments then it will affect your credit rating. 

4. Gift

When you give your child money but you don't expect it to be repaid, then it is considered a gift. You may need to sign a statement to say it is a gift and not a loan. 

Benefits: You can provide financial help, possibly without the legal, tax or financial implications of a formal arrangement.

Drawbacks: If your child has a spouse and their relationship breaks down, then the former partner could make a claim for the property.

5. Assistance in kind

If you are risk averse, you can consider helping in kind, which means covering some of the expenses that come along with buying property. You could pay for services such as a property survey, conveyancing fees or help with the stamp duty.

Benefits: You can give practical financial assistance.

Drawbacks: The amount of money you provide may be more than what your child spends. If you contribute more than what the costs are, the rest of the amount is subject to the terms of a gift or a loan.

Make sure you are well informed about your options when giving or lending money so that you can remain in the best position to help your child become a home owner. Contact your mortgage broker to discuss the right financial arrangement for your family.


home loans

There are a range of home loans available in Australia, so it can be hard to understand their features and whether they are right for you. Here we explain all you need to know... 

Variable loans

Variable loans are loans that are subject to interest rate fluctuations. Whenever interest rates increase or decrease, you will end up paying more or less for your loan, depending on what the bank has decided to do. 

A typical owner-occupied mortgage is taken out over 25 or 30 years, and although you can reduce the overall term by making higher or more frequent payments. Mortgages are either based on principal (the amount borrowed from the bank) and interest (the amount that will be paid back for having borrowed the money) loan repayments, or interest-only repayments (available for 1-5 years for owner occupied loans and 1-10 years for investment loans) where none of the principal component of the loan is paid down. 

Fixed loans

Fixed loans will allow you to lock in a specific interest rate over a set period of time, generally between 1 and 5 years. This loan is popular among borrowers who want to ensure their repayments do not rise. The main risk is that if the variable rates fall, you are locked in at a higher rate. The cost of breaking a fixed rate loan contract can be substantial and there can be financial penalities for making additional payments. 

Split-rate loans

You can take out a mortgage with one portion of the loan variable and the other portion of the loan fixed. In many ways, this will offer the best of both worlds and you have the flexibility to repay more on the variable loan and reduce the risk through the fixed loan. 

Low-doc loans

Mortgage lenders will require you to provide evidence of your ability to meet loan repayments but this can be a problem for non-salaried works such as those who are self-employed. Low-doc loans require less proof of income paperwork but the interest rate is often higher than the standard variable rate. 

Professional or packaged loans

Some mortgage lenders offer mortgages that provide 'lifetime' discounted interest rates, fee waivers, linked savings accounts and credit cards. These options are generally offered on high loan amounts. 

Non-genuine savings loans

Mortgage lenders prefer borrowers to show they have the ability to save funds over time to cover repayments. If a deposit is accrued quickly due to an inheritance or from other sources, lenders may provide less funding and require lenders mortgage insurance. Lenders mortgage insurance is a one-off insurance payment that covers the bank in case you can't make your repayments. It is usually required for home loans with a loan-to-value ratio (LVR) over 80%. 

Construction loans

Construction loans allow the amounts of finance to be drawn down progressively to cover the various stages of a construction project. Repayments (generally only on interest for the 12 months then principal and interest afterwards) are only made on the amount of the loan facility that has been drawn down. There are line fees on the undrawn amount or in most cases on the total facility limit. 

Line-of-credit facilities

This is a way of tapping into equity in an existing home and drawing down funds as required for different purposes, such as renovations. Similar to a credit card, repayments are only made on the amount drawn down. These loans are often interest-only for a significant period, but can revert to principal and interest repayments in the future. Most mortgage lenders charge extra for line of credit accounts either through a facility fee, undrawn fund fees and/or higher interest rate. 

Bridging loans

Bridging loans are designed as a short-term financing option for borrowers who need funding to buy a new residence before selling their existing home. The interest rates on these loans are higher than the standard variable interest rate. 

SMSF loans

The rules around borrowing funds within a self-managed superannuation fund are complex. Borrowings with a SMSF must be undertaken through a limited resource borrowing arrangement, which will limit the resource of the lender to a single asset. 

With mortgage lenders offering so many different products, getting professional advice is a must! A mortgage broker will support you with recommendations about what is best for you based on your personal circumstances. For more information on home loans, talk to a mortgage broker today.


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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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