Family Equity Options
Family Equity products are a popular alternative for borrowers with no or low deposit. Also known as Family Pledge or Family Guarantee, these products allow family members (usually your parents) to provide a guarantee by using their home equity as security for the loan. Family equity guarantees can also be provided in the form of regular payment assistance to a borrower.
Who Should Consider Family Equity Products?
- Borrowers with low or no deposit may use family equity to avoid or reduce their Lenders Mortgage Insurance (LMI) fee
- Borrowers who would like to borrow more may utilise a family equity option to get a bigger loan
- Borrowers who would like to purchase property sooner
Professional Assistance for Family Equity Products
Family equity guarantees can be complex finance products and require all parties concerned to be aware of their legal obligations. Get your local mortgage broker to provide advice on the family equity options available to you and handle all the necessary paperwork. Simply call us on 13 LOAN (or +61 2 9249 3739 for international callers) or email us the form on this page and we will return your contact within 2 business hours.
Types of Family Equity Options
Family equity options come in two basic types: a limited liability guarantor option, or an income guarantor option. Both these options can be complex and it is advisable that both the guarantor and the borrower obtain legal advice. Some lenders will provide a document called a Draft Forms of Agreement, which can be used by yourself and your family members as a basis for the final agreement.
Family Equity – Limited Liability Guarantor
A limited liability guarantor option allows your family members to offer their existing property as security for a portion of your home loan, usually 10-20 per cent of the property value. The property you intend to purchase will act as security for the remaining 80 per cent. This essentially means that you will have two loan facilities, neither of which will exceed 80 per cent of the property value, thereby negating the need for you to cover Lenders Mortgage Insurance.
Once the guarantor portion has been covered, the borrower can take over the entire loan and remove the additional family equity guarantee. Should the borrower default on the loan, the family member is only liable for the portion secured by their property.
In certain situations, using the family equity option may allow you to borrow more than the property value, which can in turn be used to cover additional costs and/or consolidate debt if required.
First home buyers who would normally be eligible for the First Home Buyers Grant should still be able to access a family equity option.
Family Equity – Income Guarantor
While the family equity income guarantor is rarer, this option allows for a family member to guarantee your home loan repayments for a period of time. This can be particularly useful if you are planning on taking time off work to have children or to return to study and will have a reduced income during this time. It is important to note that should the borrower default on the home loan repayments, the family member guaranteeing the loan will be liable for the full repayment amount.
Family Equity Options Assessment
Get your mortgage broker to discuss your family equity options, simply email us the form on this page or call 13 LOAN (or +61 2 9249 3739) and we will contact you within 2 business hours.
More information and home loan help
For more information on how and where to find a better home loan deal from an extensive panel of Australian banks and secure mortgage lenders, or to speak to your local area mortgage expert, contact us on 13 LOAN (direct +61 2 9249 3739)
