PARENT TO CHILD LOANS

Parent to Child Loans

What is a parent to child loan?

Simply a better way for parents to help their children (or grandchildren) get onto the property market ladder by structuring their financial assistance into a formal contract protecting parents and child.

It’s a formal loan from your parents – independently managed – to give you the purchasing power you need right now; protecting you and your parents.

What are the benefits of a parent to child loan?

• Parent decides amount and interest rate (min CPI + 0.5% = 3.5% at September 2014);
• Parent may invest part or full property purchase amount;
• Parent investment is formalised and can be subsequently waived/forgiven or enforced;
• If you can reduce the amount you borrow  to <80% of the property valuation, you will save on average over $10,000 in loan insurance costs;
• Parent can invest individually, via company or family trust entities. Parent will need to obtain independent legal, taxation and financial advice; and
• Parent’s home, assets and credit rating are not at risk.

Why is a parent to child loan the best option?

Prior to this P2C solution, parents only had three ways to help children with a property purchase:

1. Act as guarantor on child’s loan – placing their own home and retirement savings at risk;
2. 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
3. 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 is much better as it 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 still qualify for the First Home Owner Grant and applicable stamp duty concessions (if eligible).