How do home loans work in Australia

Home loan for granddaughter

You can use the equity in your home to help your granddaughter purchase a home.

Basically, if you don't want to pay LMI (Lender's Mortgage Insurance) you should stick to an LVR (Loan to Value Ratio) of 80% or less.

This means that if your home is worth $ 325,000, you can borrow up to $ 260,000 on your property to stay within that 80% LVR. For example, let's say you have a $ 100,000 outstanding mortgage. You could just borrow another $ 160,000 to stay within that 80% LVR.

This amount could be used as a security deposit for your granddaughter's house with another 80% mortgage on her new house as well.

You can also get an interest-free loan from most banks and other lenders. When we got ours at ANZ, we only got up to 10 years interest, and NAB only offers interest up to 5 years in my opinion. So you need to check with your lender for how many years the interest only offers. I have noticed recently that some lenders have increased their interest rates on interest-free loans. You should therefore also check this with your lender.

If your granddaughter struggles with repayments while studying, you may need to co-sign the mortgage with her as banks also rate the loan based on sufficient net income to be able to afford the repayments. You can co-sign the loan with her and she can be the only name on the title deeds, or you can co-sign the title deeds.

If you want her to repay you as soon as she starts working then this is another issue that you should probably come up with an arrangement between the two of you.

Just a word of warning: Make sure you add at least 2% to the rates offered and still be able to make repayments at that higher rate as the next rate hike will go up. The question is not if they will go up, but when they will go up. In response to that, I would say possibly some time later this year and pretty definitely early next year.