WANT TO HELP YOUR KIDS BUY A HOME? USE A SECOND MORTAGE. (Don’t just hand over cash.)
Ben and Sue (not their real names) were first home buyers. They have no deposit. Ben’s parents have agreed to give them $80000 to help out. Although Ben’s parents did not
want to charge any interest or fees, they did want their $80000 back eventually when the
house sold. So, at my suggestion, they contacted their solicitor who lodged a
second mortgage over Ben and Sue’s house in the name of the Parents. So ANZ
were the first mortgagee. Ben’s parents were the second mortgagee.
Sometime in the future when Ben and Sue eventually sell their home, ANZ will get paid out
first, the Parents next, and Ben and Sue will get any remaining funds.
Parents do not have to simply hand over funds without any security.
Parents do not risk their credit rating by being Guarantors for Ben and Sue’s loan.
Parents do not have to put their own house up as extra collateral.
Parents have a legally enforceable mortgage agreement, with terms and conditions, just
like ANZ’s mortgage agreement does. The Parent’s can actually force the sale of
the house if the terms in their mortgage agreement are breached.
Parents are automatically repaid their money, at settlement, when the house sells. Just like
Should Ben and Sue divorce, Ben’s parent’s money is protected. They will get it back
automatically, when the house sells.
Although it cost them roughly $1500 in Solicitors fees to establish the second mortgage, Ben’s parents now have peace of mind that their funds are protected.
A great solution for everyone!!
Disclaimer: This scenario is provided for discussion purposes only. It is strongly
recommended you seek independent legal advice in relation to the implications
of entering into a second mortgage. Property values vary with market conditions
and fluctuations do occur. Past performance in the property market is no indication
of future performance.