parent to child
It’s that time of year, graduation time!
What a wonderful celebration of your child’s education and a rare opportunity to ‘pat yourself on the back’ for a job well done, getting there! In this day and age assisting a child to get through the HSC or Uni is no mean feat.
What comes next, a job, a house, responsibility? In some respects this email is probably too soon but then depending on the next step in your child’s life path it may well not be. Not necessarilly any less daunting that getting your child through their education is wondering how your child will possibly purchase a property when their time is right. Prices just appear to be increasing consistently and making it more difficult each year.
Thankfully, there has been a very innovative product released that just may address this very issue. It is called Parent to Child or P2C. It works quite differently to all the other loan products as it lets a parent assist their child to purchase a property AND it does this without the need for either the parent or the child to pay the LMI (Lender’s Mortgage Insurance) premium which can be quite costly, if needed. The detail associated with it is all set out on the attached pdf but in a nutshell:
- it enables the child’s income be the determinant as to the loan servicing, lightening the load on the parent.
- when you get to the normal hurdle of an LMI trigger, at above 80% LVR (loan to valuation ratio), instead of that, the parent can tip in that percentage, plus the Stamp Duty costs etc.
- with this scenario what really happens is the child borrows 105% for the purchase i.e. the purchase price, plus costs (Stamp Duty etc.). The difference though is that the amount above 80% LVR, whilst borrowed, is actually lent by the parent either in the form of cash or equity over their home.
- LMI is avoided
- equity is protected, as there is a loan associated with the parent’s input.
- the parent can earn a market rate on their input whilst the child pays a market rate on the loan.