Banking: Effie Zahos

Mortgage broker Michael Saliba, from Smartline Personal Mortgage Advisers, says there are two ways to set up a loan arrangement between parents and children. Both involve using a solicitor to draw up a document, which would cost between $1500 and $2500.

1. Parties enter into a loan arrangement secured by a second mortgage – usually this is on the home of the first mortgagee (the child). Approval would be required by the first mortgagee, who would need to ensure they have enough equity in the property. If there is, there are small charges for producing a title and listing the new encumbrance on it.

2. A higher-risk option would be to create a caveat on the title in the names of the parties lending the money, though this offers less security to them from a legal standpoint as the mortgagee would have all rights to the property if the initial loan was not managed and the property went into foreclosure. There is the potential here for the parents to lose their money completely and they would then have to pursue the amount through the courts.