Should families help children into a mortgage?

[Propertunity]

To say that people shouldn't do something because of what could eventuate without knowing peoples reasoning, character and history is being over cautious or just plain narrow mindedness.

I am naturally a broad minded person and can accept that ppl have many different viewpoints on things. However, when it comes to going guarantor for someone else's debts ( unless as mortgageman says "that the guarantee that you give is limited to the amount provided as a deposit"), I get really narrow-minded.

I don't care if the kid you are going guarantor for has always paid his debts since he was toilet trained, or has held a responsible job since he left school or he has a government guarantee - you will most always suffer by going guarantor for someone else's debts (and no I never have so I'm not speaking from personal hurt).

Hey, the banker Token Funder agrees with me - and if its good enough for him as the lender to say it is bad then it must be really bad.

Perhaps TF could share some real life examples?

 

[Piston Broke]

Is this a good idea?
Considering the high cost of housing, parents acting as guarantors could be the only way left for some children to get into property.

Well i think the whole idea of this discussion is faulty.
There are plenty of reasonable priced houses out there in the suburbs <$300K.
3b LUG Brock houses in reasonably good areas.
Anyone working & saving for the last couple years should have enough to cover the deposit. If they dont, then keep saving.
There should be no reason to go guarantor. Partnership yes, ie 50/50 split on the deposit for a bigger place.
Of course the banks & RE industry has no problem taking money from anybody they can, whenever they can.

 

[BV]

Thanks guys,
Some food for thought there.
I think I'd rather keep things simple and help the kids with a deposit.

I've been thinking though that I should get them to sign an agreement saying that it is a loan which will have to be repaid (plus interest) or if it's not repaid the kid will reduce his claim on any family inheritance later on in life.

I thought of this because as you know the earlier we buy a property the bigger our benefit. So our 1st child will start first and will benefit the most and this won't be fair to the other kids who will start 5 or 10 years later.

An alternative would be to give the 1st child say $40K
and X years later give the 2nd child $40K + ($40K* CPI * X years)
so they both have a similar starting amount.

Any thoughts?

cheers

 

[Piston Broke]

I thought of this because as you know the earlier we buy a property the bigger our benefit.
Any thoughts?
cheers

I dont agree with that statement at all.
I'd rather be buying now than a few years ago.

If yur gonna make a contribution, then do keep it simple at say 10% deposit of a similar house.
Again, if they are working, they should have some "skin" in the game.
Hand it to them on a platter without ever working for it, and they develop the J. Packer sexy fingers.

 

[bdc]

you will most always suffer by going guarantor for someone else's debts

This MAY be a true, but even if it is then it in no way diminishes the usefulness of that option for certain people so I couldn't say that no one EVER should do that.

But we will have to agree to disagree, but we can both take satisfaction in the knowledge that we are the one who is correct in this instance

 

[weg]

Thanks guys,

An alternative would be to give the 1st child say $40K
and X years later give the 2nd child $40K + ($40K* CPI * X years)
so they both have a similar starting amount.

Any thoughts?

cheers

You could calculate the difference by giving them the same % of the price of a median home at the given time. Just make sure you're looking at the same median - metropolitan area, state. This way the rise is more specific to the price of houses.

 

[BKR]

when I was young I asked my parents to go guarantor but they said no. I couldn't believe it at first but later came to understand they had paid theirs off over 30 years and didn't want to risk it. I didn't have any problems with this and just had to get it my way. Now 20 yrs and several houses later my mum offered to go guarantor to get a deal I wanted, this time I said no
Now she is on her own there's no way I would risk her house, what if I had an accident or something, the thought of losing my place and hers would terrible.
So for my kids, guarantor no, money yes as long as they can show committed savings first.

 

[Propertunity]

I thought of this because as you know the earlier we buy a property the bigger our benefit. So our 1st child will start first and will benefit the most and this won't be fair to the other kids who will start 5 or 10 years later.
An alternative would be to give the 1st child say $40K
and X years later give the 2nd child $40K + ($40K* CPI * X years)
so they both have a similar starting amount.

I know I am always seen to be promoting API Magazine but I really don't have any commercial interests in it. Bill, there is an interesting article on how another family has done this in May 09 API. -

Profile: Turner brothers:
Under their parents guidance the Turner brothers made headway in the property market at a young age

 

[Token Funder]

What does this statement mean?

If the guarantee is called, the guarantor is liable for the debt yet most guarantors simply don't see what they are doing in that context.

They simply don't consider the risk.

An easy way to bring it home for someone considering going guarantor for a $200,000k loan is to simply ask if they would be prepared to simply give the borrower that amount of money. Worst case scenario, that is exactly what would happen if the guarantee is called.

It tends to focus the mind.

Short version: if you wouldn't be prepared/couldn't afford to lend the money to the borrower, don't go guarantor.

 

[wylie]

If the guarantee is called, the guarantor is liable for the debt yet most guarantors simply don't see what they are doing in that context.

They simply don't consider the risk.

Every time I have had to sign as guarantor on the loans in hubby's name I have been FORCED by the bank to see a solicitor who has explained very bluntly what my signing means to me financially.

I would think that all banks would be forcing all guarantors to take independent legal advice before signing off on the guarantee..... surely.

If you can sit through a solicitor spelling out the dangers, and still sign, then I would think this is going in with "eyes open".

 

[battler]

Token Funder,
Thanks, I fully understand the implications of being a guarantor and that is why we did it that way for our son. I just couldn't get my head around that particular statement.

 

[Token Funder]

Every time I have had to sign as guarantor on the loans in hubby's name I have been FORCED by the bank to see a solicitor who has explained very bluntly what my signing means to me financially.

I would think that all banks would be forcing all guarantors to take independent legal advice before signing off on the guarantee..... surely.

If you can sit through a solicitor spelling out the dangers, and still sign, then I would think this is going in with "eyes open".

You'd think so but it's remarkable how the story is retold when the guarantee is ultimately called in....

 

[wylie]

But you sign a bit of paper saying that it has been explained. I realise this used not to be the case (I used to work in a bank), but for quite a long time, it has been the case, so I doubt many could use that old "I didn't understand what I was signing" line anymore.

 

[Token Funder]

Taking accountability for your actions ain't what it used to be.