Q: I am 48 and want to help my daughter buy her first home. We still owe $90,000 on our own mortgage, so how do I use the equity to get her into the market?
A: A number of lenders provide loans, which can assist homebuyers in these circumstances. This is done by way of a guarantee provided by a family member. The guarantee can be used to provide extra security and/or income support for the servicing of the loan. The security and income support can be taken as individual components or both together. A guarantee for security purposes needs to be supported by a mortgage over your house property and can be limited to a certain amount or be unlimited. Most lenders prefer a first mortgage, however some will accept a second mortgage. The new homebuyer’s loan would be secured by a mortgage over the property being purchased and the value of the guarantee. The value of the guarantee is based on the value of the guarantor’s property less any existing loans or the amount to which it may be limited. The benefit to a homebuyer in having a loan guaranteed for security purposes is that it lowers the Loan to Valuation Ratio (LVR). Provided the value of the guarantee reduces the LVR to below eighty percent lenders mortgage insurance would not be required, thus eliminating the need for mortgage insurance, which is a big saving to the new homebuyer. In a case where a homebuyer’s income or employment does not meet the lender’s criteria for income or employment a guarantor can assist by guaranteeing the payments. A situation like that can arise where the new homebuyer has had a change of employment. It would be best for you to discuss with your home loan broker which lenders will accept guarantees. This may well include your own home loan lender in which case you may be able to use your current mortgage to secure the proposed guarantee.
Q: I bought my first home in June and am worried about interest rates. How long do I have to stick with one lender before I can switch to another and fix my home loan.
A: You can always switch or pay out your home loan early, however financial penalties may apply in the form of fees and charges. It will depend on the type of loan you have at present. The loan contract or letter of offer for your current home loan should cover any penalties for the early payout of your loan so firstly you should refer to that document. These penalties could be described as an early termination or deferred establishment fee. The penalties generally apply in the first three to five years of a loan depending on the policy of the lender. On loans, which have an introductory or honeymoon rate in the first year, most lenders will apply a fee if the loan is paid out early. Loans on which the lender has waived the establishment fee or do not charge an application fee upfront often attract a deferred establishment fee. The most common loan that does not always have a penalty for early payout is the basic rate home loan. In switching to another loan, apart from the financial penalties for early payout of the existing loan, you should consider if it is better to remain with your existing lender switching to a fixed rate loan with them or refinancing to another lender. It should be cost effective to refinance. You have only recently taken out your current loan paying a number of set up costs including bank and government charges. You should therefore check with your lender or broker the costs of switching to a fixed rate loan with your current lender. Then use the services of your broker to compare the extra costs you may incur in refinancing to a new lender ensuring the new lender is offering a better interest rate.
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