Hopping on the “Bank of Mum and Dad” bandwagon, Bluebay Home Loan, a WA-based mortgage manager has launched a “new” loan offering designed to help first time buyers access the market without a deposit.
Our research shows that many first time buyers are getting help from parents – on average up to $88,000. But there are risks attached (especially in a falling market), as we discussed some time back, and at a time when many lenders are desperate to lend to first time buyers.
Now, Bluebay have introduced a Parent Assist Home Loan, which formalises the Bank of Mum and Dad arrangements and allows first home buyers (FHBs) to receive a loan for a home deposit of 5 per cent to 20 per cent from parents, with interest-only repayments at half the rate of the home loan.
There may be some benefit in a more formal structure, as many Bank of Mum and Dad arrangements are very informal!
By using this structure, first home buyers who borrow 20 per cent of the property from their parents are exempt from lenders mortgage insurance (LMI). LMI premiums are expensive, and many brokers now recommend avoiding them. In addition, first time borrowers can get access to first home owner grants within this structure.
Rather than spend years saving for a deposit, a parent can lend their child up to 20% of the property’s purchase price.
It’s an official structured loan managed by Bluebay Home Loans.
Bluebay Home Loans arranges and manages the remainder of the loan through a large lender.
Because it’s a loan and not a gift, parents are paid back with interest.
Interest is half the interest rate of the Bluebay home loan rate, which helps on the parents loaned amount with lower repayments.
Parents are paid back over time or when the house is sold or refinanced, including their share of any investment growth.
Parents don’t have to become a guarantor so children are not asking them to risk their family home.
The new homebuyer still gets access to the First Home Owner’s Grant and any stamp duty concessions.
Because you’ve contributed a larger deposit you could save paying thousands of dollars in mortgage insurance.
The fees are transparent with an ongoing management fee of only $5 per month.
The new buyer gets a little more financial muscle, which means they’ll have more choice to buy something bigger, somewhere better or maybe even something closer to the family.
And remember, things happen in life Whatever changes occur down the track, parents have official protection over their money.
Most importantly, a Parent Assist Home Loan removes the stress and emotion of borrowing money from a parent
