Khounch Cares Ep #5 - When parents put their home on the line, is it worth the risk? Artwork

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Khounch Cares Ep #5 - When parents put their home on the line, is it worth the risk?

March 19, 2025 • Zebunisso Alimova

0:00 | 4:09

Navigating family financial relationships can be tricky, especially when it comes to helping children purchase their first homes. Our conversation with mortgage advisor Khounch dives deep into the modern reality of parent guarantors - a topic that affects thousands of families trying to help the next generation onto the property ladder.

The guarantor landscape has changed dramatically. Gone are the days when parents could simply sign a form to help their children secure a mortgage. Today, becoming a guarantor means parents must undergo the same rigorous financial assessment as the primary borrowers. This creates particular challenges for the "asset-rich but cash-poor" parents who own homes but may have limited income in retirement. We explore how lenders evaluate guarantor applications and what documentation is required.

Financial benefits for first-home buyers with guarantors are significant. Access to preferred interest rates without low equity penalties can save thousands over the life of a loan. However, these advantages come with substantial risks for parents. If children default on their mortgage payments, parents' homes could be at risk of forced sale. This delicate balance between providing family support and protecting parental financial security requires careful navigation and professional guidance. Whether you're considering becoming a guarantor, asking your parents for help, or exploring alternatives, our discussion provides essential insights to make informed decisions about this increasingly common financial arrangement.

Have you experienced the guarantor process yourself? We'd love to hear your story - reach out on our social media channels to share your experience and join the conversation.

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Speaker 1 0:11

And welcome back to the episode with Kunj Kiss . Hi Kunj , kia ora everyone . Today we are tackling a big question Should the parents step in and help their kids to buy a home by becoming a guarantor ? Hey , kunj , we've had a few of those happen recently , when kids come in and they're like don't have much deposit , but I have my mum and dad and they want to be my guarantor . What do you think about that ? Is it a good idea ?

Speaker 2 0:35

Well , it has its pros and cons , I guess .

Speaker 1 0:38

All right Well

Welcome and Introduction

Speaker 1 0:39

let's address first what is exactly a guarantor loan and how does it work .

Speaker 2 0:43

Yeah , so a guarantor is usually mum and dad that come in to help generally our first home buyers to get their mortgage , ones that you know have a lower deposit . The guarantor doesn't need to provide any cash or anything , but they do take a financial risk if the borrower defaults

Guarantor Loans Explained

Speaker 2 1:04

and often they just give us a house right .

Speaker 1 1:07

Like mom and dad , they have their own house . They're living in this is how they don't give us any cash . They just got a house and they're like here , have some of my house .

Speaker 2 1:15

Pretty much . Yes , have 20% of my house to go to 20% of your house is generally how it works or how the lenders look at it .

Speaker 1 1:26

But what we try to remind to clients and again , guys , this is not a financial advice . What we do try to remind about is , back in the day anyone could put their hand up and say , I'll be the guarantor . These days it's completely different . These days we actually have to get all the financial information on mom and dad as well .

Speaker 2 1:47

Yeah , so mom and dad

Financial Requirements for Parents

Speaker 2 1:48

will have to provide their statement of position , evidence their income show that they can afford the loan , just in case something happens and they default . I mean , like the pros , I guess for having a guarantor 20% deposit is , you know , you get preferred interest rates and things like that . So it does help with the whole repayment side of things for our first home buyers .

Speaker 1 2:18

Yeah , they get the special rates . They don't get punished by the low equity margins or the low equity fees , so they are saving quite a lot of money in that sense . But I guess the downside is the parents will have to provide all of their financial statements and unfortunately for a lot of mom and dads in that position is

Pros and Cons Breakdown

Speaker 1 2:37

they're asset rich but cash poor , because they might be retired , they might not have any other income coming in , so they have no other means to show that they can afford to borrow that much . Yeah , yeah . And , as we said , the risks are also if kids default on the loan for any reason , then it falls on the parents and it forces mortgagee sale , sometimes in cases where the parents have to forego their house .

Speaker 2 3:00

Yeah , and also , you know you got to spend a bit of time to get some legal advice as well . So always , you know , have a chat to your lawyers in terms of what it looks like for mum and dad to be guarantors as well .

Speaker 1 3:15

Yeah , but at the end of the day it is possible . If this is where you want to , you know , head down this road , absolutely .

Speaker 2 3:22

We've helped clients do it this way , with mum and dad being guarantors , and we also help them to do it without them Correct .

Speaker 1 3:29

So either way it

Legal Considerations and Conclusion

Speaker 1 3:30

works , it works and we make it in the most Simplest way .

Speaker 2 3:35

We try and make it easy as it sounds hard , but it's actually our job to make it simple and easy .

Speaker 1 3:42

Yeah absolutely so , guys , don't forget . If you've got any questions or comments about this topic , if it's relevant to you , if you want to even share your own story , please feel free to reach out . You can find us on Facebook , youtube and Instagram , and we're here to help you . Goodbye , bye .

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