Welcome to How Do They Afford That, The podcast that peaks into the financial lives of everyday Australians. I'm Michael Thompson. I'm a writer and the co host of the podcast Fear and Greed business news. As always, I'm with Canna Campbell, financial planner, founder of Sugar Mama TV, the financial literacy platform covering YouTube, podcast books, Instagram threads, TikTok, keynote, speeches and more. Hello, Canna, good morning.

Welcome to How Do They Afford That, The podcast that peaks into the financial lives of everyday Australians. I'm Michael Thompson. I'm a writer and the co host of the podcast Fear and Greed business news. As always, I'm with Canna Campbell, financial planner, founder of Sugar Mama TV, the financial literacy platform covering YouTube, podcast books, Instagram threads, TikTok, keynote, speeches and more. Hello, Canna, good morning.

I'm excited about today's episodes. I'm going to be sort of playing Devil's.

I'm excited about today's episodes. I'm going to be sort of playing Devil's.

Advocate, and that's different to what you normally do. No, that's usually me, isn't it. I'm usually the one that's kind of being a little bit picky.

Advocate, and that's different to what you normally do. No, that's usually me, isn't it. I'm usually the one that's kind of being a little bit picky.

I'm going to be doing that like what if, what if this happens, what if that happens, so that our listeners really understand what they're potentially giving themselves into or what they're potentially asking for.

I'm going to be doing that like what if, what if this happens, what if that happens, so that our listeners really understand what they're potentially giving themselves into or what they're potentially asking for.

Well, we talked a few weeks ago about a bunch of different ways to get into the property market, and now one of those was to use a guarranteur. Now there's a few parts to this. It's it's not as simple and straightforward as you might think. I'm assuming that, but we're going to take a deeper dive into this topic today and we've called in a special guest to help us. And this is why you are going to be taking the role, Kenda of the Devil's Advocate, because we are joined in the studio by Adam mckab from blue Land and Financial Services. He's a mortgage broke that we've spoken to before. He knows this space so well. Adam, welcome back to HOW today.

Well, we talked a few weeks ago about a bunch of different ways to get into the property market, and now one of those was to use a guarranteur. Now there's a few parts to this. It's it's not as simple and straightforward as you might think. I'm assuming that, but we're going to take a deeper dive into this topic today and we've called in a special guest to help us. And this is why you are going to be taking the role, Kenda of the Devil's Advocate, because we are joined in the studio by Adam mckab from blue Land and Financial Services. He's a mortgage broke that we've spoken to before. He knows this space so well. Adam, welcome back to HOW today.

For that, thank you, thanks for having me.

For that, thank you, thanks for having me.

Let us start with the very very basics. How does it work? How does it work to have somebody act as a guaranteur for you when.

Let us start with the very very basics. How does it work? How does it work to have somebody act as a guaranteur for you when.

You go for a home loan. It's fairly straightforward.

You go for a home loan. It's fairly straightforward.

So you've just got it's essentially a potential borrowers that have got a gap between their deposit amount of ideally twenty percent plus any stamp duty. So the guarantee is acting to cover that gap and it's a limited guarantee to that value.

So you've just got it's essentially a potential borrowers that have got a gap between their deposit amount of ideally twenty percent plus any stamp duty. So the guarantee is acting to cover that gap and it's a limited guarantee to that value.

Okay, all right, And so the guaranteur is only covering the gap itself.

Okay, all right, And so the guaranteur is only covering the gap itself.

Correct, So it's not for the whole loan, no no, And in many instances because from bank to bank. Their internal processes and policies around structuring these differ. But the guarantee is always limited limited guarantee, and that's written into the contract, the loan contract to specify what that guarantee or the limited guarantee value is.

Correct, So it's not for the whole loan, no no, And in many instances because from bank to bank. Their internal processes and policies around structuring these differ. But the guarantee is always limited limited guarantee, and that's written into the contract, the loan contract to specify what that guarantee or the limited guarantee value is.

Okay, So can we just to kind of illustrate how it works. Let's use a hypothetical scenario. Let's say buying an apartment and the apartment is worth five hundred thousand dollars.

Okay, So can we just to kind of illustrate how it works. Let's use a hypothetical scenario. Let's say buying an apartment and the apartment is worth five hundred thousand dollars.

Let's make it easier, let's call it a million perfect all right, yep.

Let's make it easier, let's call it a million perfect all right, yep.

That's kind of realistic.

That's kind of realistic.

Yes, yeah, yeah, for Sydney. So a million dollar mortgage purchase. Borrowers A and B have got a one hundred thousand dollars deposit, that's only ten percent. The stamp duty will probably be around seventy thousand, So they are then one hundred and seventy thousand dollars short of meeting the twenty percent equity plus DMgt so eighty percent loan to value ratio for the end loan.

Yes, yeah, yeah, for Sydney. So a million dollar mortgage purchase. Borrowers A and B have got a one hundred thousand dollars deposit, that's only ten percent. The stamp duty will probably be around seventy thousand, So they are then one hundred and seventy thousand dollars short of meeting the twenty percent equity plus DMgt so eighty percent loan to value ratio for the end loan.

Okay.

Okay.

So in this scenario, the guaranteols would have a limited guarantee for one hundred and seventy thousand.

So in this scenario, the guaranteols would have a limited guarantee for one hundred and seventy thousand.

Okay, And so that is because they only had a ten percent deposit, correct, And then they also have to pay the stamp duty which is added on top of the overall. So in the end, the total purchase price is one point oh seven that's right, a million, of which they are only able to supply one hundred thousand dollars themselves. And so in order to get to that eighty percent to the twenty percent figure, essentially in order to.

Okay, And so that is because they only had a ten percent deposit, correct, And then they also have to pay the stamp duty which is added on top of the overall. So in the end, the total purchase price is one point oh seven that's right, a million, of which they are only able to supply one hundred thousand dollars themselves. And so in order to get to that eighty percent to the twenty percent figure, essentially in order to.

Avoid paying LUMI Yeah.

Avoid paying LUMI Yeah.

Okay, that they then need somebody to guarantee that gap. That's right, the one hundred and seventy thousand dollars gap correct in there.

Okay, that they then need somebody to guarantee that gap. That's right, the one hundred and seventy thousand dollars gap correct in there.

So within the loan contract, the loan that the borrows will be taking out would be nine hundred and seventy thousand, and of that one hundred and seventy thousand is the limit guarantee. The limited guarantee is the risk for the guaranteels. It's that value that the bank have security over and can enforce.

So within the loan contract, the loan that the borrows will be taking out would be nine hundred and seventy thousand, and of that one hundred and seventy thousand is the limit guarantee. The limited guarantee is the risk for the guaranteels. It's that value that the bank have security over and can enforce.

So most people use this scenario for the sort of mom and dad and adult children to help them get their foot in the door with the property market. Is it stretched to that or can you use it for other family members like nieces and nephews or even for like god children, god daughters, immediate familymediate family only.

So most people use this scenario for the sort of mom and dad and adult children to help them get their foot in the door with the property market. Is it stretched to that or can you use it for other family members like nieces and nephews or even for like god children, god daughters, immediate familymediate family only.

So you've got parents, step parents, siblings.

So you've got parents, step parents, siblings.

You can't do this for friends.

You can't do this for friends.

No.

No.

Is that actually a rule or is that just kind of what is generally accepted.

Is that actually a rule or is that just kind of what is generally accepted.

No, that's that's the policy.

No, that's that's the policy.

So it is absolutely restricted to that because Kenna is going to play devil's advocate later, and this is part of the reason when things go wrong, you know, it can go horribly wrong.

So it is absolutely restricted to that because Kenna is going to play devil's advocate later, and this is part of the reason when things go wrong, you know, it can go horribly wrong.

So that's why it's limited to direct family, immediate family.

So that's why it's limited to direct family, immediate family.

Okay, And so then assuming then that we are talking in most cases it is going to be parents with adult children, then would be with that lineup with what you see mostly see any other Okay, all right, well let's just assume that that's the general kind of situation. Is it typically parents then, who have paid off their home in full? Is that kind of who this is most suited.

Okay, And so then assuming then that we are talking in most cases it is going to be parents with adult children, then would be with that lineup with what you see mostly see any other Okay, all right, well let's just assume that that's the general kind of situation. Is it typically parents then, who have paid off their home in full? Is that kind of who this is most suited.

To for the guarantee's purpose. Yeah.

To for the guarantee's purpose. Yeah.

Ideally we do see parents with a small mortgage and then they're providing guarantees and they're comfortable to do that. Generally they've got a lot of equity and their property, so they're comfortable and in most situations being as a broker, but also the bank to approve the guarantee. They want to see that the parents are in a stable financial position as well and prepared for retirement so that if the if the loan went wrong, they're not put in financial hardship.

Ideally we do see parents with a small mortgage and then they're providing guarantees and they're comfortable to do that. Generally they've got a lot of equity and their property, so they're comfortable and in most situations being as a broker, but also the bank to approve the guarantee. They want to see that the parents are in a stable financial position as well and prepared for retirement so that if the if the loan went wrong, they're not put in financial hardship.

So this kind of gets into them that the eligibility criteria for someone to be accepted as a as a guaranteur by lenders, and it would be that they have to have either paid off the home or only have a very small amount owing on it and have what a stable financial.

So this kind of gets into them that the eligibility criteria for someone to be accepted as a as a guaranteur by lenders, and it would be that they have to have either paid off the home or only have a very small amount owing on it and have what a stable financial.

Environment ideally, but again it depends on circumstances.

Environment ideally, but again it depends on circumstances.

You know, if you've got, say, parents live in a five hundred thousand dollars home and have a fifty thousand mortgage, but they're in that market that is an average house price, then if they've got no other assets, then that their borderline or whether they're acceptable right most most likely would be. But the amount that they'd be providing a guaranteur for would be limited by that equity depending on where the kids are trying to buy.

You know, if you've got, say, parents live in a five hundred thousand dollars home and have a fifty thousand mortgage, but they're in that market that is an average house price, then if they've got no other assets, then that their borderline or whether they're acceptable right most most likely would be. But the amount that they'd be providing a guaranteur for would be limited by that equity depending on where the kids are trying to buy.

So is there a maximum then to the amount that theyre a ratio kind of as to how much they need to have of equity built up in their own property before that they can go a guaranteur on an equivalent level.

So is there a maximum then to the amount that theyre a ratio kind of as to how much they need to have of equity built up in their own property before that they can go a guaranteur on an equivalent level.

Yeah, So, just to go back on step, So it's mainly the major banks here that are doing the security guarantees. The smaller lenders aren't in that competitive range. Most of the banks have got the same policy. I'd say seventy percent loan to value ratio is the maximum that any bank would allow when doing a guarantee a loan. Okay, however, that is the overall exposure on the parents property. But most of the time the guarantee has a limit of fifty percent of the guarantee its property value, so they don't want to go over fifty percent of that property for the guarantee, and that would be pretty rare that you're doing that.

Yeah, So, just to go back on step, So it's mainly the major banks here that are doing the security guarantees. The smaller lenders aren't in that competitive range. Most of the banks have got the same policy. I'd say seventy percent loan to value ratio is the maximum that any bank would allow when doing a guarantee a loan. Okay, however, that is the overall exposure on the parents property. But most of the time the guarantee has a limit of fifty percent of the guarantee its property value, so they don't want to go over fifty percent of that property for the guarantee, and that would be pretty rare that you're doing that.

I love that you were able to summarize it so much more succinctly than I was able to ask the question that made it sound so confusing in the way that I put it to you and you answered it in two sentences.

I love that you were able to summarize it so much more succinctly than I was able to ask the question that made it sound so confusing in the way that I put it to you and you answered it in two sentences.

Well, you can get confusing because when you.

Well, you can get confusing because when you.

Think, especially if I'm involved, well, when you.

Think, especially if I'm involved, well, when you.

Think about the parents, if they've got a mortgage, then what learn how much can they lend against as a guarantee it. They can get tricky, particularly if, as I said, if the parents are say, living in regional New South Wales, the average value of properties out there is much less than in the city. If their kids are trying to buy in the city, that throws the scales out of whack.

Think about the parents, if they've got a mortgage, then what learn how much can they lend against as a guarantee it. They can get tricky, particularly if, as I said, if the parents are say, living in regional New South Wales, the average value of properties out there is much less than in the city. If their kids are trying to buy in the city, that throws the scales out of whack.

Okay, Now, one of the obvious benefits for adult children doing this is having a guaranteur means they can potentially avoid mortgage insurance, which is expensive. And yeah, I would sometimes say it's sometimes it's a necessary expense, but if it can be boided, it's a great savings. Is expensive, did money? I was trying to say that in a polite way. What are other benefits in doing this new potentially access economies of scale and get a cheaper interest rate or are there other potential savings behind this?

Okay, Now, one of the obvious benefits for adult children doing this is having a guaranteur means they can potentially avoid mortgage insurance, which is expensive. And yeah, I would sometimes say it's sometimes it's a necessary expense, but if it can be boided, it's a great savings. Is expensive, did money? I was trying to say that in a polite way. What are other benefits in doing this new potentially access economies of scale and get a cheaper interest rate or are there other potential savings behind this?

The most obvious one there there is the interest rate. Most banks more banks have got interest rates which are weight based on your loan to value ratio. Is the lower the LVR, the better the rate. So if you're avoiding l MI then you're getting eighty percent or below loan to value ratio will get you a better interest rate then with mortgage insurance.

The most obvious one there there is the interest rate. Most banks more banks have got interest rates which are weight based on your loan to value ratio. Is the lower the LVR, the better the rate. So if you're avoiding l MI then you're getting eighty percent or below loan to value ratio will get you a better interest rate then with mortgage insurance.

Wow, that low was the risk for the bank, so they put you in a lower interest rate category.

Wow, that low was the risk for the bank, so they put you in a lower interest rate category.

I just I feel like this is so one for for people who don't have parents that can help, like it it just leads people out, you know, like having to fight so much harder.

I just I feel like this is so one for for people who don't have parents that can help, like it it just leads people out, you know, like having to fight so much harder.

Yeah, yeah, I mean, but I suppose to some extent, the property industry has never been particularly.

Yeah, yeah, I mean, but I suppose to some extent, the property industry has never been particularly.

Fair, has it.

Fair, has it.

That's true, Like, it doesn't strike me as the most kind of equitable kind of setup risk reward.

That's true, Like, it doesn't strike me as the most kind of equitable kind of setup risk reward.

I mean, it's just an advantage if you've got parents that can do it for your family member. That can be a security guarantee.

I mean, it's just an advantage if you've got parents that can do it for your family member. That can be a security guarantee.

It's good.

It's good.

Can I ask about the impact then on the guarantee, because this feels like the risk is all on them, that what responsibilities are they taking on? What risks are they taking on? And we'll get then, I suppose into where it can go wrong.

Can I ask about the impact then on the guarantee, because this feels like the risk is all on them, that what responsibilities are they taking on? What risks are they taking on? And we'll get then, I suppose into where it can go wrong.

Well, it's obvious risks.

Well, it's obvious risks.

So whatever that limited guarantee is, they're essentially making a promise to the bank that they will pay that bad if the borrowers default on their mortgage. Now, now that's a very blunt way of looking at it, but.

So whatever that limited guarantee is, they're essentially making a promise to the bank that they will pay that bad if the borrowers default on their mortgage. Now, now that's a very blunt way of looking at it, but.

You have to you have to.

You have to you have to.

You've got to assume or hope that if the borrowers did get into financial art lost their employment, that they might be able to sell and cover all of the debt. It would only be in a downturn of property prices that would go the other way against them. Really, but at the end of the day, the guaranteurs are guaranteeing that loan, so they're open for the enforcement.

You've got to assume or hope that if the borrowers did get into financial art lost their employment, that they might be able to sell and cover all of the debt. It would only be in a downturn of property prices that would go the other way against them. Really, but at the end of the day, the guaranteurs are guaranteeing that loan, so they're open for the enforcement.

Yeah.

Yeah.

Yeah, The clue is in the name, there isn't it that, which is.

Yeah, The clue is in the name, there isn't it that, which is.

Why it's important for the guarantels to understand upfront, and they have to sign documentation in many cases get independent legal advice to confirm that if they are saying if the borrowers fail, they can comfortably pay the loan service the loan or yeah, they're responsible for it.

Why it's important for the guarantels to understand upfront, and they have to sign documentation in many cases get independent legal advice to confirm that if they are saying if the borrowers fail, they can comfortably pay the loan service the loan or yeah, they're responsible for it.

What happens if you've got to say, three children, and all three want to get their foot in the door of the property market and they're saving a way.

What happens if you've got to say, three children, and all three want to get their foot in the door of the property market and they're saving a way.

Would you have to pick one?

Would you have to pick one?

Like yeah, no, just tell them to wait, Like I make a.

Like yeah, no, just tell them to wait, Like I make a.

Favorite, have three or four properties, you can provide security guarantees to all of the children if it fits within the criteria of the guarantee figures. So, as we spoke about earlier, maximum seventy percent exposure on that property being offered as security.

Favorite, have three or four properties, you can provide security guarantees to all of the children if it fits within the criteria of the guarantee figures. So, as we spoke about earlier, maximum seventy percent exposure on that property being offered as security.

All Right, this is a it's such a meaty kind of topic, this.

All Right, this is a it's such a meaty kind of topic, this.

One, isn't it? And it is.

One, isn't it? And it is.

It's such a fascinating thing and hanging over you the whole time is this kind of scenario of what happens if everything goes wrong. I do want to get into that in a little bit more detail and talk about kind of exit strategies and what does happen if the borrower defaults on the mortgage, and also the long term impact on the guaranteur in terms of the potential for them to get other loans and things as well. We'll take a quick break and come back and dive into some of those parts. Can We are talking today about one of the many ways to get into the property market, and this is to use a guaranteur for your loan. And we're joined in the studio by Adam McKay from blue Land and Financial Services, a mortgage broker who knows this space so well, and he's taking us through how it all works. Did you you were mentioning off air about parents at different stages.

It's such a fascinating thing and hanging over you the whole time is this kind of scenario of what happens if everything goes wrong. I do want to get into that in a little bit more detail and talk about kind of exit strategies and what does happen if the borrower defaults on the mortgage, and also the long term impact on the guaranteur in terms of the potential for them to get other loans and things as well. We'll take a quick break and come back and dive into some of those parts. Can We are talking today about one of the many ways to get into the property market, and this is to use a guaranteur for your loan. And we're joined in the studio by Adam McKay from blue Land and Financial Services, a mortgage broker who knows this space so well, and he's taking us through how it all works. Did you you were mentioning off air about parents at different stages.

Of life exactly? So look, we already know that you know the guaranteor's financial situation is assessed by the lender. You know, they're going to ask them some personal questions and obviously they can see if they've got a mortgage or an old or if they've got investment loans, and you know where their wealth actually sits. What happens if you've got a parent, it's about to go guaranteur. But they are approaching say sixty five, which is typically from many people when they're looking at retirement or even semi retirement, or what if they've actually just become a self funded retire can they still go guarantee?

Of life exactly? So look, we already know that you know the guaranteor's financial situation is assessed by the lender. You know, they're going to ask them some personal questions and obviously they can see if they've got a mortgage or an old or if they've got investment loans, and you know where their wealth actually sits. What happens if you've got a parent, it's about to go guaranteur. But they are approaching say sixty five, which is typically from many people when they're looking at retirement or even semi retirement, or what if they've actually just become a self funded retire can they still go guarantee?

Yes?

Yes?

Okay, And the process of being a guaranteel they're not as open to the wide assessment criteria as a normal borrower. So it's specifically around the equity in their property and do they meet the test for being an acceptable guarantee in terms of being immediate family have enough equity in their property financially stable and secure if that guarantee fell over or the borrower fell over, that they could get on with their retirement and their life without financial hardship, so that they have the means to pay the loan or sell property that would help them cover that.

Okay, And the process of being a guaranteel they're not as open to the wide assessment criteria as a normal borrower. So it's specifically around the equity in their property and do they meet the test for being an acceptable guarantee in terms of being immediate family have enough equity in their property financially stable and secure if that guarantee fell over or the borrower fell over, that they could get on with their retirement and their life without financial hardship, so that they have the means to pay the loan or sell property that would help them cover that.

Okay, what about the duration of the guarantee. How long are these agreements typically for. Are they tied to it for the life of the mortgage overall or is there a point at which that chunk that was guaranteed by the guarantealk can then be absorbed back into the individual's goodness me and my question is a long winded and wordy, aren't they? But do you know you know what I try to say here?

Okay, what about the duration of the guarantee. How long are these agreements typically for. Are they tied to it for the life of the mortgage overall or is there a point at which that chunk that was guaranteed by the guarantealk can then be absorbed back into the individual's goodness me and my question is a long winded and wordy, aren't they? But do you know you know what I try to say here?

Yeah, Look, when the loans are written, there are a thirty thirty year loan term. So if the borrower is meeting all their obligations under that contract, then the guarantee could stay in force for as long as that loan is in place. Wow, if you don't take any action. So the actions that we take to review the value of the borrower's property annually or as often as they'd like. Once that we get evaluation that is high enough to cover that eighty percent loan overall, we look to discharge the guarantee.

Yeah, Look, when the loans are written, there are a thirty thirty year loan term. So if the borrower is meeting all their obligations under that contract, then the guarantee could stay in force for as long as that loan is in place. Wow, if you don't take any action. So the actions that we take to review the value of the borrower's property annually or as often as they'd like. Once that we get evaluation that is high enough to cover that eighty percent loan overall, we look to discharge the guarantee.

And is that involved refinancing the loan itself?

And is that involved refinancing the loan itself?

No?

No?

No, not well internally or externally. So you could look at it two ways, and at the time we'd be assessing what's in their best interest. But if you can remove them from the bank they're already with. That can just be a bit of an admin process of signings and forms and getting that approved by the lender to release the guarantee.

No, not well internally or externally. So you could look at it two ways, and at the time we'd be assessing what's in their best interest. But if you can remove them from the bank they're already with. That can just be a bit of an admin process of signings and forms and getting that approved by the lender to release the guarantee.

Okay, so it doesn't have to be for the thirty duration, especially if you're working with a mortgage broker who is quite proactive and is willing to kind of look at this regularly, review and assess. You also short, but it's also encouraging the borrowers to pay down YEA as quickly as possible to help release the guarantee.

Okay, so it doesn't have to be for the thirty duration, especially if you're working with a mortgage broker who is quite proactive and is willing to kind of look at this regularly, review and assess. You also short, but it's also encouraging the borrowers to pay down YEA as quickly as possible to help release the guarantee.

What happens if the guaranteur suddenly unexpectedly passes tricky one.

What happens if the guaranteur suddenly unexpectedly passes tricky one.

That's also you know circumstances. I mean, is it if it was just a single parent who was providing the guarantee, you know, then you're going through what's in their will, assuming the kids are going to get something from that so they could pay off that guaranteur guarantee amount.

That's also you know circumstances. I mean, is it if it was just a single parent who was providing the guarantee, you know, then you're going through what's in their will, assuming the kids are going to get something from that so they could pay off that guaranteur guarantee amount.

It's a bit of a tricky.

It's a bit of a tricky.

One, big case by case, and you'd go to the bank and say, look, this has happened, and they'd assess it and make it work with you.

One, big case by case, and you'd go to the bank and say, look, this has happened, and they'd assess it and make it work with you.

Yeah.

Yeah.

Look, it depends on the complexity of the family that will. What's in the will, how many beneficiaries are left and you know, the borrowers would then have a difficult still maybe not difficult, but a decision to make on how they how they release that is it is it by there are inheritance, you know, you could look at refinancing. You know, it just is a case by case.

Look, it depends on the complexity of the family that will. What's in the will, how many beneficiaries are left and you know, the borrowers would then have a difficult still maybe not difficult, but a decision to make on how they how they release that is it is it by there are inheritance, you know, you could look at refinancing. You know, it just is a case by case.

Well what happens then if there is a relationship breakdown for whatever reason and the parent goes, you know what stuff that I'm not going to be your guaranteer anymore. I want to renig my will release my duties from being your guarantee. Like is that actually can you do that? Or like what's the.

Well what happens then if there is a relationship breakdown for whatever reason and the parent goes, you know what stuff that I'm not going to be your guaranteer anymore. I want to renig my will release my duties from being your guarantee. Like is that actually can you do that? Or like what's the.

Scandal though the Well.

Scandal though the Well.

What happened would happen? Like I'm sure yeah.

What happened would happen? Like I'm sure yeah.

Because like Jerry Springer.

Because like Jerry Springer.

The mortgage put down that chair. It would all depend on the situation at the time, because if a guarantee can't just say I'm out, you know, I've changed my mind, They're already in the contract, already in that the loans started, so it would need to be you'd need to investigate the options, and one of them might be that the children need to refinance and pay mortgage insurance if that's feasible it would depend on rates at the time they're income and expenses.

The mortgage put down that chair. It would all depend on the situation at the time, because if a guarantee can't just say I'm out, you know, I've changed my mind, They're already in the contract, already in that the loans started, so it would need to be you'd need to investigate the options, and one of them might be that the children need to refinance and pay mortgage insurance if that's feasible it would depend on rates at the time they're income and expenses.

So that is a potential kind of exit strategy. Then that is less severe than having to sell the property. Overall that there is almost a bit of a safety net there and is going to be expensive. It's going to cost you money, but it is probably going to be better than having to sell the house.

So that is a potential kind of exit strategy. Then that is less severe than having to sell the property. Overall that there is almost a bit of a safety net there and is going to be expensive. It's going to cost you money, but it is probably going to be better than having to sell the house.

Yeah, and they're probably the only two options really.

Yeah, and they're probably the only two options really.

Yeah, what about I mentioned the long term impact on the guaranteur. Does acting as a guarantee limit that person's ability to borrow money to take out other loans in the future. Is there a broader effect that it has on their financial situation?

Yeah, what about I mentioned the long term impact on the guaranteur. Does acting as a guarantee limit that person's ability to borrow money to take out other loans in the future. Is there a broader effect that it has on their financial situation?

Most definitely.

Most definitely.

So the guarantee, if they're applying for finance, would need to declare that there have provided a guarantee for that debt, and that.

So the guarantee, if they're applying for finance, would need to declare that there have provided a guarantee for that debt, and that.

Would reduce their ability to borrow.

Would reduce their ability to borrow.

It wouldn't be a great deal on those the guarantee amounts generally you know, the five ten percent amounts of property prices.

It wouldn't be a great deal on those the guarantee amounts generally you know, the five ten percent amounts of property prices.

But but they.

But but they.

Do have to declare that and it would impact their their ability to borrow.

Do have to declare that and it would impact their their ability to borrow.

See, these are important things you need to keep in mind if you're thinking about you know, your your adult kids are saying, hey, you can help us, and you've got plans to start.

See, these are important things you need to keep in mind if you're thinking about you know, your your adult kids are saying, hey, you can help us, and you've got plans to start.

You know, most most guaranteurs that I speak to have exhausted their borrowing days that they do really they don't they feel comfortable providing a guarantee because they don't see themselves going out and applying for finance again.

You know, most most guaranteurs that I speak to have exhausted their borrowing days that they do really they don't they feel comfortable providing a guarantee because they don't see themselves going out and applying for finance again.

Okay, And that's one of the questions I like.

Okay, And that's one of the questions I like.

To ask to get to get an understanding because the last thing I want as well is to take on a problem that you know the guaranteurs. And another part of the process with the bank is ensuring that the guaranteels aren't under duress by the by the children or the borrowers being forced.

To ask to get to get an understanding because the last thing I want as well is to take on a problem that you know the guaranteurs. And another part of the process with the bank is ensuring that the guaranteels aren't under duress by the by the children or the borrowers being forced.

Into this, which would be I wouldn't see I don't want to see common, but it would that would have happen.

Into this, which would be I wouldn't see I don't want to see common, but it would that would have happen.

What about and I know who talked previously about kind of what happens if things do go wrong, But if the borrower does default on their mortgage, how quickly does it all just fall apart? Then for the guaranteur, is it a case that they are required to stump up money straight away kind of thing, or or is there a bit of kind of leeway What happens when it all goes wrong.

What about and I know who talked previously about kind of what happens if things do go wrong, But if the borrower does default on their mortgage, how quickly does it all just fall apart? Then for the guaranteur, is it a case that they are required to stump up money straight away kind of thing, or or is there a bit of kind of leeway What happens when it all goes wrong.

Look that in the first instance, the banks are always motivated to try and keep someone in their house. Yeah, they don't want to be evicting and forcing possession. So generally you're giving at least ninety days to sort your affairs out to try and get in. You know, you could applyverfhy its your hardship, get on top of things, come back and get your own payments in order.

Look that in the first instance, the banks are always motivated to try and keep someone in their house. Yeah, they don't want to be evicting and forcing possession. So generally you're giving at least ninety days to sort your affairs out to try and get in. You know, you could applyverfhy its your hardship, get on top of things, come back and get your own payments in order.

So it's similar in that respect then too, if someone missed their mortgage payments and they didn't have a guaranteur, that they still have that ability to talk to their bank, and the bank will kind of review their situation and will work with them to try and get through it, rather than just going straight for the nuclear option of kind of repossessing or selling the house.

So it's similar in that respect then too, if someone missed their mortgage payments and they didn't have a guaranteur, that they still have that ability to talk to their bank, and the bank will kind of review their situation and will work with them to try and get through it, rather than just going straight for the nuclear option of kind of repossessing or selling the house.

Definitely.

Definitely.

Unfortunately, I haven't had any instances where your guarantee loans have gone bad to my knowledge anyway, So it's a bit of an unknown as to what level the banks would go to to recoup any default payments, but I would think they're going to treat.

Unfortunately, I haven't had any instances where your guarantee loans have gone bad to my knowledge anyway, So it's a bit of an unknown as to what level the banks would go to to recoup any default payments, but I would think they're going to treat.

It as similarly as normal mortgage it's in default.

It as similarly as normal mortgage it's in default.

I have one more from me, and this is probably quite niche but does using a guarantel affect first home bio grants, so that well, first.

I have one more from me, and this is probably quite niche but does using a guarantel affect first home bio grants, so that well, first.

Home by a grant is a cash payment from the government, so that that isn't stamp duty concessions are not affected by it. The only one that might be which I haven't really done any of these loans, are that you know, the government guarantee schemes where they're part buying ownership of the house with you, So I don't see why they would impact that either.

Home by a grant is a cash payment from the government, so that that isn't stamp duty concessions are not affected by it. The only one that might be which I haven't really done any of these loans, are that you know, the government guarantee schemes where they're part buying ownership of the house with you, So I don't see why they would impact that either.

But that's also getting very specific, isn't it. Yeah, you suddenly got to tick a whole lot of boxes in order to be talking about that scenario. But broadly speaking, having some might act as a guarantee isn't going to affect your eligibility for some of these.

But that's also getting very specific, isn't it. Yeah, you suddenly got to tick a whole lot of boxes in order to be talking about that scenario. But broadly speaking, having some might act as a guarantee isn't going to affect your eligibility for some of these.

Assistants, And well, they're both aimed at the same purpose, right to help to help people get in the market.

Assistants, And well, they're both aimed at the same purpose, right to help to help people get in the market.

And finally, all right, last question from me, Adam, You've got two young kids. You've obviously been a mortgage broker for what twenty twenty two years, two years of which we've known other about eighteen. What is the advice you'd give your future self as a parent that wanted to look at doing this for your children.

And finally, all right, last question from me, Adam, You've got two young kids. You've obviously been a mortgage broker for what twenty twenty two years, two years of which we've known other about eighteen. What is the advice you'd give your future self as a parent that wanted to look at doing this for your children.

I think the most important thing is to have robust conversations up front and document what your plans would be if things go wrong. It's sort of similar to like a shareholder's agreement if you're going into business with someone. Okay, essentially it's what you're doing. So have those robust conversations, have an action plan should things go wrong, and then you can refer to it down the track if things do go wrong.

I think the most important thing is to have robust conversations up front and document what your plans would be if things go wrong. It's sort of similar to like a shareholder's agreement if you're going into business with someone. Okay, essentially it's what you're doing. So have those robust conversations, have an action plan should things go wrong, and then you can refer to it down the track if things do go wrong.

Hopefully wouldn't happen with my kids.

Hopefully wouldn't happen with my kids.

And if you've got one child who you know is terrible at repaying things, probably kind of nudge them in another direction.

And if you've got one child who you know is terrible at repaying things, probably kind of nudge them in another direction.

Yeah, go guarantee it for the other one.

Yeah, go guarantee it for the other one.

Yeah, yep, Oh that's so mean.

Yeah, yep, Oh that's so mean.

That's that's smart. That's a that's a very wise piece of advice to your future self.

That's that's smart. That's a that's a very wise piece of advice to your future self.

But look, other than that, it's it would just be helping the kids with budgeting. Don't overextend yourself, don't take too much risk in terms of your borrowing capacity. So guarantee it can help getting you in the market, but doesn't mean you should stretch yourself to the absolute maximum to buy.

But look, other than that, it's it would just be helping the kids with budgeting. Don't overextend yourself, don't take too much risk in terms of your borrowing capacity. So guarantee it can help getting you in the market, but doesn't mean you should stretch yourself to the absolute maximum to buy.

Such great wise advice.

Such great wise advice.

Yeah, I feel like we've just spent what twenty odd minutes or sorry, and I now know I was about saying I know everything there is to know about going Garenta and just Adam just looks at me with like one eyebrow slightly half raised, which is a very similar expression to the one that kind of gives me when I try to proclaim myself as a new expert on a particular topic. But I can safely say that I have learned a lot about this whole this whole space, Adam, thank you for joining us today.

Yeah, I feel like we've just spent what twenty odd minutes or sorry, and I now know I was about saying I know everything there is to know about going Garenta and just Adam just looks at me with like one eyebrow slightly half raised, which is a very similar expression to the one that kind of gives me when I try to proclaim myself as a new expert on a particular topic. But I can safely say that I have learned a lot about this whole this whole space, Adam, thank you for joining us today.

Pleasure.

Pleasure.

That was Adam McCabe from blue Lands and Financial Services. Can it if we need more information from you? Where do we find you?

That was Adam McCabe from blue Lands and Financial Services. Can it if we need more information from you? Where do we find you?

Best place is always Instagram a Sugar Mama.

Best place is always Instagram a Sugar Mama.

TV and you can hear me every day with Sean Aylmer on Fear and Greed, Australia's best business podcast. Thank you for listening to how do They for that? Remember to hit follow on the podcast and the very best thing you can do is tell somebody else about the podcast, or perhaps if they are someone who is kind of in this space at the moment and considering going down this path, send them this episode so that they can learn all about it as well. Thank you very much for your company join us again next week.

TV and you can hear me every day with Sean Aylmer on Fear and Greed, Australia's best business podcast. Thank you for listening to how do They for that? Remember to hit follow on the podcast and the very best thing you can do is tell somebody else about the podcast, or perhaps if they are someone who is kind of in this space at the moment and considering going down this path, send them this episode so that they can learn all about it as well. Thank you very much for your company join us again next week.