Family Pledge Facilities (Limited Guarantees)
A Family Pledge or Limited Guarantee is a facility whereby your parents (or family/friends with certain lenders) can help you purchase a home by using some of the equity they have available in their own property. This additional equity provides additional security for a limited amount of your loan.
By using a Family Pledge facility, you can actually borrow up to 100% of the purchase price, plus costs; without paying any Lenders Mortgage Insurance (LMI) costs.
The Limited Guarantee can be released in the future once your total loans reflect an 80% LVR (Loan to Value Ratio); or you can release at between 80%-90% LVR and pay the LMI costs in the future.
Quick Facts:
You can borrow 100% of the purchase price, plus costs, without paying LMI
The Guarantee provided by your parents is limited to a portion of the loan rather than the entire loan amount
The limited guarantee can be removed at any time, as long as there is sufficient equity in the primary security
Guarantors can only be grandparents, parents, siblings or sons or daughters of the borrower(s)
The guarantee is to be supported by a registered first or second mortgage over the family member's property
Guarantors will need to gain independent legal advice with regard to the Guarantee
Family Pledge example:
As an example, a customer wishing to purchase a $450,000 property and wanting to borrow $405,000 would have an LVR of 90%, which would incur an LMI premium. If a Limited Guarantee of $45,000 was added as additional security, the LVR would reduce to 80%. The LMI premium would then not be payable, which could save the customer up to $6,682
Releasing the Guarantee:
The guarantee can be released at the borrower or guarantor’s request. The borrower or guarantor may request a revaluation of the borrower’s property at any time, subject to the payment of the requisite valuation fee at the time of the request. A valuation of the borrower’s security property will be required to confirm the LVR of the borrower’s loan. Providing the LVR is under the prevailing LMI threshold(s) or the required LMI premium is paid, the guarantee and the mortgage that supports it, will be released, providing the above conditions are met.