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Alicia Watkins
Alicia Watkins

Alicia Watkins

The Reserve Bank of Australia (RBA) has left the official cash rate on hold at 2% at its second monetary policy board meeting for 2016.

The cash rate was largely tipped to remain on hold today, with most economists and analysts agreeing the cash rate would steady.

Strong economic data, including moderate property price growth and a bounce back in consumer sentiment, provided the Reserve Bank of Australia with no reason to change the official cash rate.

In addition to the recent bounce back in consumer sentiment, data from CoreLogic shows property values continue to rise, with dwelling values across the combined capital cities climbing 0.5% throughout February.

RBA seemed to have more concern in labour market conditions and didn't rule out a rate cut this year.

If you are interested to know how to position yourself financially in current market condition, please contact us to arrange a discussion with one of our experienced lender manages.

With property price goes north quickly, it is getting more and more difficult for first home buyers to save up enough deposit to get a foothold in the property market.

Family Guarantee/Pledge Mortgage is a mortgage scheme designed to enable parents to help their children bridge that deposit gap.

The basics of family guarantee mortgage is that parents are allowed to guarantee a specific amount to their children’s home loan, usually up to 105% of the price of new property.

Here is an example.

Julie wanted to buy a property of $500,000 as her first home. As part of purchase, she also needs to pay stamp duty and other cost total $25,000. So she needs $525,000 to complete the purchase. But she doesn’t have deposit.

Her parents David and Michelle agreed to offer her a guarantee of $125,000 with family guarantee mortgage with their property.

With this guarantee mortgage, Julie can borrow $400,000 with a mortgage over her new property plus $125,000 with parents’ guarantee mortgage.

Different banks have different rules for family guarantee mortgage. But the main principal rules are:

  • The principal borrower, Julie in our example, is responsible to regular repayment of total loan, $525,000 in our example;
  • Principal borrower secures a loan of 80% of new property value. $400,000 in our example;
  • Parents must offer their property as additional security towards mortgage. If there is an existing loan for parents’ property, the existing loan plus guarantee mortgage cannot exceed 80% of property value.

For example, David and Michelle’s property is worth $1.2 mil and they still have a loan of $300,000.

With family guarantee of $125,000, the total loan will be $425,000, which is under 80% of $1.2mil.

  • Parents are legally responsible to repay the mortgage up to guarantee amount in case principle borrower failed to repayment the mortgage.

It is possible that parents keep existing mortgage unchanged while offering family guarantee mortgage to another bank.

It is also possible for family member to help other family members using family guarantee mortgage.

Family guarantee mortgage has become a popular scheme for parents to help children overcome difficulty of deposit.

Not all lenders offer family guarantee mortgages, nor every lender has the same rules, it is advisable for borrowers to obtain professional advice from mortgage professionals.

We also strongly recommend both parents and children obtain legal advice before taking family guarantee mortgage. We are expert in family guarantee mortgages.

If you are interested in getting advice and sourcing family guarantee finance, please contact us to arrange a discussion with one of our experienced lender manages.

"What is comparison rate and do I pay comparison rate?", these are the questions borrowers ask most.

The answer to the second part of questions is no, you do not pay comparison rate. You pay the annual interest rate.

For example, for a home loan of rate of 4.25%pa and comparison rate of 4.55%pa, bank charges you 4.25%pa as interest rate.

The actual cost of a home loan is not just interest rate, it may also have costs associated with it, such as establishment cost and on going cost etc.

So just comparing interest rates, borrowers may not compare apple with apple among different loan products.

Comparison rate is then designed with intention to present an acutal borrowing cost over whole loan term in form of a "rate", by taking both interest rate and associated costs into account, with a pre-set loan amount and loan term.

Comparison rate is very simplistic and doesn't provide useful information to most borrowers, simply because not all  borrowers take a loan of the same amount and same loan term.

In many cases, a loan product with higher comparison rate offers better value than those with lower comparison rates.

For example, for fixed interest rate loans, a prevailing variable rate after the fixed rate expires must be used to calculate comparison rate, which simply distorts the real cost of fixed rates during the term. 

Are you comparing apple with apple? Contact us now and let our professional lending manager to show you how to save on your home loan.

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