A BETTER OPTION FOR PARENTS TO HELP THEIR CHILDREN BUY A HOME
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Prior to the P2C® solution, parents only had three ways to help children with a property purchase:
- Act as guarantor on child’s loan - placing their own home and retirement savings at risk;
- Gift some money for deposit - but many lenders require evidence that the child had saved the deposit in their own right so this wasn’t the answer; and
- Buy the house with the child as co-purchasers - which meant the children would not qualify for any First Home Owner Grants (FHOG) or stamp duty concessions.
P2C® does not require parents to enter into any guarantee or place their property at risk. We can take care of all the paperwork, and parents determine the loan term and interest rate charged.
So Mum and Dad’s house is not used as security for your P2C® home loan, and the children can still qualify for the First Home Owner Grant and applicable stamp duty concessions (if eligible).
- Parents determines dollar amount (either partial or full property purchase price)
- Parents determines term of loan (up to 25 years)
- Parents determines interest rate (min CPI + 0.5% = 3.5% as at Sep 2014)
- Parents can assist with 105% of purchase price
- Parents don't become guarantors or place their property at risk
- Legally-binding paperwork is set up in one transaction to agreed terms
- Child still qualifies for the First Home Owners Grant (if applicable)
- La Trobe pay monthly income to parent
- La Trobe Financial loans money to child
- Loan is repayed in full
- Parents can waive/forgive or enforce the P2C® loan at any time
Benefits for the Children Buying a property
- get the purchasing power they need right now as there is no dollar limit on the P2C® amount;
- obtain help from “mum and dad bank” without having onerous parental guarantees required or risking your parents life savings;
- better protect your inheritable wealth by formally documenting the assistance as a P2C® loan, (not as a gift), so it is not exposed to subsequent marital or family breakdowns;
- negotiate with your parents as to the dollar amount (either partial or full property purchase price), setting of the loan term up to 25 years, and setting the initial rate of interest on the P2C® monies at much lower rates than anywhere else;
- can obtain co-investments from both families (you and your partners);
- have all the paperwork taken care of in one simple transaction;
- are not required to buy a particular home from a particular builder and none of your equity in the property is shared with your parents at any time – the home is yours and you remain independent;
- you cannot capriciously be evicted, nor can your rate be changed by your parents, because of a family feud, as the P2C® loan is independently managed and is subject to agreed terms;
- gain access to a P2C® solution that can be used for any worthwhile purpose, including property purchase, high interest rate debt consolidations (family bail outs), refinance existing loans, construction or even to cover school or university tuition fees;
- by increasing the amount of the P2C® loan you can reduce the loan-to-valuation ratio on the first mortgage to below 80% thus saving tens of thousands of dollars in lenders mortgage insurance premiums; and
- still qualify for the First Home Owner Grant and applicable stamp duty concessions (if eligible).
Benefits for the Parents when helping Children Buy a Property
- help their children without having onerous guarantees or risking their life savings;
- give children the purchasing power they need right now, protecting you and them;
- better protect your wealth by formally documenting the assistance as a P2C® loan, (not as a gift), so it is not exposed to potential marital or family breakdowns;
- obtain a secured investment in a registered investment Fund with over 14,000 other retail investors, paying monthly income;
- set the dollar amount (either partial or full property purchase price), set the loan term (up to 25 years), and set the initial rate of interest on the P2C® monies;
- can advance up to 105% of the property purchase price to assist their children;
- will not expose your credit rating to any further grading as you are not the borrower;
- can subsequently waive/forgive or enforce the P2C® loan (it’s that flexible);
- can invest individually, via your company or family trust entities - parents will need to obtain independent legal, taxation and financial advice when doing so;
- have all the paperwork taken care of and have a registered mortgage interest;
- can co-invest with other families assisting their children in a combined P2C® process;
- can also look to ‘bail-out’ or consolidate children’s current high interest rate debts to give children a fresh start or pay private school fees – the P2C® loan can be used for any worthwhile purpose, including property purchase, debt consolidation, refinance, construction or even to cover school or university tuition fees; and
- if you don’t have cash ready for allocation into P2C, parents could borrow against their existing home - however you should take independent financial and legal advice and DO NOT offer any personal guarantees.
What is wrong with Guarantees and Gifts
- Gifts to your children will not count as genuine savings (just like inheritances) and lenders will require at least 10% genuine deposit when assessing any home loan application.
- Additionally if parents guarantee their children’s loan, banks will use the parent’s home as security which can be a risk particularly if the parents are nearing retirement age.
- Just too many risk factors are involved with guarantees, particularly if the child’s marriage or family relationship breaks down.
Can Parents borrow on existing equity in their home to do this.
Yes parents who don’t have cash ready for allocation into P2C, could borrow against their existing home and the repayments made by the children can be set to cover the loan repayments - however we recommend if you do so that you take independent financial and legal advice and DO NOT offer any personal guarantees (this is called a limited recourse loan – which banks will not be able to offer but P2C® possibly can).
What are the Risks
here is no risk to the parent’s credit history or own property as there are no guarantees given by the parent. The only risk to the parent is loss of capital should the child default on their mortgage, and the property is subsequently sold for a shortfall. However, parents do have the ability to grant a stay of recovery proceedings in relation to their investment if they wish.
In fact, one of the advantages in P2C® is that any financial help you can grant your child is protected by the independently-managed P2C mortgage, as opposed to gift monies which are at risk in event of marriage or family breakup or bankruptcy.