A family pledge loan allows a member of your family to use the equity in their home to guarantee your home loan.
In essence, a family member acts as a guarantor and puts up their property as collateral for your house loan. The guarantor is putting some of the equity on their property against your house loan by doing so.
The Benefits of Using a Family Pledge Loan
In Australia, a 20% down payment is advised to secure a house. Buyers who are unable to pay 20% of the purchase price upfront must pay mortgage insurance to the lender, which is added to the loan balance. Many people choose to wait to buy until they have enough money saved to cover the 20% deposit to avoid having to pay lenders’ mortgage insurance.
A family pledge loan would be a speedier solution.
How Does A Family Pledge Loan Work?
The guarantor’s equity in the property is used as security to back the loan and cover the deposit that you are unable to pay.
Example:
If you want to buy a house for $500,000, the bank will most likely finance you for $400,000 and want you to put down a 20% down- $100,000.
If you are unable to pay the $100,000 deposit, the bank will need you to pay the lender’s mortgage insurance.
Assume you have family members who own a property worth $1,000,000 and have a debt of $500,000. In that situation, because there is enough usable equity, they can offer the bank $100,000 from the property’s equity as security without asking the borrower to pay lenders mortgage insurance.
FAQs
Got questions? Find answers to some of the most commonly asked questions about our financial solutions, processes, and services to help you make informed decisions.
LMI is a third-party insurance premium payable by you as the borrower, to protect the lender against the potential loss of money if the borrower is unable to repay the home loan. Generally, an application with a Loan-to-Value Ratio (LVR) of 80% or more may result in the borrower having to pay Lender’s Mortgage Insurance.
Extra payment is an excellent feature of a good mortgage deal. Here, your lender lets you make lump-sum additional payments along with your regular monthly payment. Making extra payments allows you to shorten the length of time you are paying your mortgage. Since your balance is being paid off faster, you will also have fewer total payments to make, thus lowering your interest. At Reliiance Financial Solutions, we can help you find the most suitable mortgage deal for you. We have a range of lenders that allow you to make as many extra repayments as you want, whenever you want, without attracting any penalties.
Stamp Duty is a government tax imposed on contracts, with the amount usually calculated as a percentage of the contract value. In layman’s terms, it is the tax charged for your legal documents to be ‘stamped’.
If you are planning to buy a property, it’s crucial to factor your State’s Stamp Duty into your budget.Chances are, based on your circumstances and state of domicile, you might be able to obtain a stamp duty exemption, or concessions (discount) against the purchase of your first home. Stamp duty laws get changed often, so be sure to check your State Government’s website for the most up-to-date information.
Did you know that some lenders would allow you to cash out any extra repayment you made whenever you need the money? You read that right. This useful mortgage feature is called “redraw facility”. You can withdraw any extra repayments or lump sum payments you make over the life of the loan. At Reliiance Financial Solutions, we will explain all mortgage products to you, including those which allow you to the redraw option.
Testimonials
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At Reliiance Financial Solutions, we have been privileged to have worked with hundreds of remarkable individuals and families.
Very few things come close to receiving their genuine appreciation of our services. All we can say in return is – the pleasure was all ours.
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