Mum & Dad Bank Ltd


As a parent, it’s a natural instinct to want the best for your children. You want to see them succeed and you want to see them achieve their goals and dreams. From day one, your priority becomes helping your children and looking out for them however you possibly can.

However, as a parent, you may also be faced with a difficult time in life where your children ask for your help to support them financially. Sounds simple, right? Sadly, this is rarely the case. Helping your children on a monetary level may pose a great financial risk to you in the long run, despite your best interests.

Many children ask their parents to act as a guarantor for them. Guarantor loans occur when the equity of one’s home is used to secure the loan for another family member. By acting as a guarantor for your child, you are essentially giving your home back to the bank and agree to take responsibility for any funds or debts your child may be unable to pay in the future.

Guarantor loans are increasing in popularity, particularly for first home buyers. This is because guarantor loans allow homeowners to borrow 100% or more of the purchase price by drawing upon the equity of a family member’s home. Think of it as an alternative form of insurance, if you like.

Sadly, many parents dive into this decision without fully understanding the terms, conditions and potential consequences of signing along this kind of dotted line. Many parents feel a sense of pressure and guilt to help their children, often causing them to disregard their own financial needs and stability. If you are considering acting as a guarantor for your children but do not want to hinder yourself in the process, be sure to do the following before signing into any financial agreement:

Always seek legal advice.
Before signing anything, seek expert advice from an experienced professional who is skilled in these matters. When you speak to a professional, you are putting your best foot forward by developing a better understanding of everything involved. Make sure to do this before any offer is made on a property to avoid disappointment for you or your child if they are unable to settle for any reason.

Additionally, it would be in your best interest to organise a separate meeting with your mortgage broker to discuss any concerns you may have before signing any official documents.

Educate yourself.
Educate yourself about the responsibilities involved in being a guarantor. Financial matters are rarely as straightforward as they seem, so make sure to speak to the right people and do individual research to ensure you are making a well-informed decision.

Be realistic.
It’s important to be honest with yourself when it comes to this decision. Is your child ready to take on the responsibility of a mortgage? Can you trust their financial habits? What will happen if they can no longer afford their repayments?

In these situations, it’s perfectly okay to hope for the best but plan for the worst. Consider the idea of insurance to cover illness, injury or unexpected job loss. After all, if things go south, you have signed over the responsibility for any debt left outstanding.

If you have any further questions about acting as a guarantor for your child or you would like to discuss your options in the matter, feel free to contact Boss Money for expert advice and leading knowledge.