Equity (Family) Pledge
Your equity position is a major factor when looking to obtain finance approval with a bank. An equity pledge (also known as family pledge) is a lending option that allows for one family member to provide support to another when entering the difficult property market. Allow McCarthy Money to explain what this arrangement entails and help you determine if this is an appropriate option.
Getting into the property market is becoming more difficult. A regular comment by many McCarthy Money clients is that they’re concerned about their children being unable to achieve the ‘Australian Dream’ of home ownership. Trying to enjoy your life while paying the rent, covering the general living expenses, and then saving a reasonable deposit for a property purchase is a tremendous challenge even for a couple working full-time. If you are meeting your home loan repayments but are finding it difficult to save a 10 or even 5% deposit, or are currently paying mortgage type repayments as a rental expense, you may be concerned that the increases in property value are outperforming your ability to save.
Are you a parent who has a son or daughter looking to get into the property market and you’re looking for a way to assist? An equity pledge lending arrangement could be the solution that you’re looking for.
An equity or family pledge is a non-mortgage insured lending option available through several banks that allows for a portion of the debt used to purchase a property to be secured against a family member’s residential property. The property being purchased is in your name, the loan is in your name, and you need to demonstrate affordability over the entire debt. However your family member offers a limited guarantee for the portion of debt that is secured by their property.
This means you can overcome the lengthy process of saving a deposit as well as save on the exorbitant cost associated with lenders mortgage insurance which protects the bank not you, yet you have to cover the expense.
Allow the credit advisers at McCarthy Money help determine if this is an appropriate option in your financial situation and help explain to your family what the arrangement entails. This decision will need consideration by all parties involved and legal advice is a requirement of the bank.
We can facilitate these meetings to help articulate the benefits on offer but also the associated risks. Everyone’s family is a little different and we find that a third party can help to ensure that all voices are heard and concerns are addressed early in the process.