Parents help kids avoid mortgage insurance

An increasing number of parents are becoming guarantors for their children as they enter the property market and take out a mortgage.

With many first home buyers seeking to buy before the boosted first home buyers grant expires at the end of 2009, many parents are paying some or all of the home deposit, but increasingly also becoming guarantor for the loan.

The head of the Commonwealth Bank's Mortgage Wealth service, James Sheffield, says there are two main types of guarantee: a supported guarantee where a property is provided as extra security and an unsupported guarantee, where the guarantor agrees to service the loan if the borrower fails to meet repayments. Sheffield says many parents limit the guaranteed amount to 20 per cent of the purchase price so their children avoid paying lenders' mortgage insurance.