Hillbilly
1st May 2007, 03:03
Here's some sound advice for those of you who are parents and thinking of
giving your kids a "helping hand" at owning their first home:
A House Divided
Parents who help their off-spring buy a house should protect it from future claims by their former partners.
The deposit gap is a hurdle many young people find hard to clear. So parents often like to help their child buy a property but with divorce and separation so common, some terms may need to be established to keep their money in the family.
Parents who are going to help their child should get proper legal advice about how to document the terms of the loan. One way would be to loan the money rather than gift it. They would register a second mortgage behind the bank's mortgage with a loan agreement that reserves the right to charge interest from when the money was first borrowed, at typical second mortgage rates.
If the child's relationship goes wrong, then the parents can invoke the loan and the loan must be repaid. Because of the compounding effect of the interest, a large amount would be owed. The house would have to be sold, the bank's debt satisfied, then the principal plus interest repaid to the parents with little or nothing exposed to the ex's claims. The parents would have to pay tax on the interest but would get their money back.
Parents can also gift money, buy the property and let the child live in it rent-free, secure the loan with a caveat over the title, or the child and partner can enter a pre-nuptial agreement.
The golden rule for parents is to get legal advice and document precisely the conditions under which they're providing the money.
giving your kids a "helping hand" at owning their first home:
A House Divided
Parents who help their off-spring buy a house should protect it from future claims by their former partners.
The deposit gap is a hurdle many young people find hard to clear. So parents often like to help their child buy a property but with divorce and separation so common, some terms may need to be established to keep their money in the family.
Parents who are going to help their child should get proper legal advice about how to document the terms of the loan. One way would be to loan the money rather than gift it. They would register a second mortgage behind the bank's mortgage with a loan agreement that reserves the right to charge interest from when the money was first borrowed, at typical second mortgage rates.
If the child's relationship goes wrong, then the parents can invoke the loan and the loan must be repaid. Because of the compounding effect of the interest, a large amount would be owed. The house would have to be sold, the bank's debt satisfied, then the principal plus interest repaid to the parents with little or nothing exposed to the ex's claims. The parents would have to pay tax on the interest but would get their money back.
Parents can also gift money, buy the property and let the child live in it rent-free, secure the loan with a caveat over the title, or the child and partner can enter a pre-nuptial agreement.
The golden rule for parents is to get legal advice and document precisely the conditions under which they're providing the money.