With the soaring price of properties, many parents want to help their children with their first home as the ‘bank of mum and dad’, but it’s important to plan out how exactly the support will work. If you are looking at supporting your child’s first home, here are three things that you should consider and discuss with your child:
- Gift vs Loan: One of the first decisions is whether the money is a gift or a loan. While an additional loan may limit the amount of credit available by the bank, a gift as opposed to a loan, can leave parents exposed if the child’s relationship breaks down or financial troubles arise. A loan, especially one documented formally, can offer more protection and clarity.
- Mortgage: If the contribution is a loan, another point to consider is whether the loan should be secured against the property as a first or second mortgage. A secured loan gives parents a registered legal interest in the property, which gives priority payment if the property was to be sold or transferred. Without security, the risk of losing out on the repayment could be higher, in the event of the child’s divorce, bankruptcy or financial dispute.
- Terms of the Loan: It is also vital to specify terms of the loan arrangement. Even within families, misunderstandings can occur. A written agreement should outline repayment expectations, interest (if any), and what happens if the child can’t repay. This helps preserve relationships and ensures everyone is on the same page.
While helping your child is generous, treating the arrangement with legal and financial care ensures that your support is both meaningful and protected.
For more information on supporting your child’s first home, reach out to McNamara Law today on 1300 285 888.
