Browse Forums Home Finance 1 Jun 16, 2009 10:42 pm Ok, So I understand the basics that your parents (for example) can use the equity that they have built up in their home to be a guarantor for your deposit (in the case of no deposit etc) and if the gauarantor up to 20% then you don't have to pay LMI. Do banks require the parents to redo their loans to take into account the guarantee? Obviously it effects there borrowing power in the future also. How does this work from the bank's side of things for that 20%. Basically who pays it back in the long term, because it has to be paid for somewhere along the line. For example, say if you were buying a house for $200,000 and had enough money to pay for stamp duty out of your own pocket so only need 100% loan. Your parents agree to be guarnantor for 20% ($40,000) so you only need to borrow and repay $160,000. In 25 years you have paid back the $160000 (plus all the interest!!)so what has happened to the $40,000?? The banks surely aren't letting you buy a house for $200,000 and then only pay $160 000 ( +$$$ in interest) for it. My parents are considering doing this for my brother and I'm just trying to understand the process a little more. Obviously if they go ahead with it they will get independent financial and legal advice. Thanks, Meldives Re: Spefically, how do family equity/guarantor loans work ? 2Jun 16, 2009 11:17 pm well if you parents gave you 40k then you really only borrowed 160k from the bank, so that is all you pay. If you just mean they put up security worth 40k then the bank still loan you 200k and you still have to pay back 200k, it just means if things go wrong they can get that 40k off your parents. Re: Spefically, how do family equity/guarantor loans work ? 3Jun 16, 2009 11:24 pm wakeboardandy If you just mean they put up security worth 40k then the bank still loan you 200k and you still have to pay back 200k, it just means if things go wrong they can get that 40k off your parents. Ok, I understand now - I had read this (from www.communitycps.com.au) For Example: Home purchase price* $300,000 Borrow 100% of home purchase price $300,000 Borrow costs associated with the purchase (up to 10% of purchase price), say + $20,000 Loan amount $320,000 Loan Valuation Ratio is 107% 80% of the home purchase price is $240,000 The amount that the family member’s guarantee must be for is calculated as follows: Loan amount $320,000 Less 80% of the home purchase price and value - $240,000 Family member’s guarantee is for^ $80,000 And had skimmed over the part that the loan is still 100%...for some reason I thought it reduced the loan to 80% as well. Cheers, meldives Re: Spefically, how do family equity/guarantor loans work ? 4Jun 17, 2009 12:23 am Yes, we have a family guarantee and how you have explained it in your last post is how ours works too . Love not paying mortgage insurance! Thanks parents-in-law! Kristi Living the dream. 4 horsey acres in the country. What's the next project??? west sydney mortgage broker 5Jun 17, 2009 1:05 pm meldives, the following post with links may help; [url] viewtopic.php?f=9&t=15819&p=228199&hilit=guarantee#p228199[/url] The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 19108 Hi everyone, Newbie renovator here, after some advice for combining our family room in the picture and the alfresco and make a larger family room. There is a flush sill… 0 4896 Block of two storey townhouses requires painting on the roof. A brick parapet wall separates each unit and extends above the tiled roof. The parapet walls require sealing… 0 3502 |