FAMILY PLEDGE HOME LOAN Product Specification Effective as at 12 June 2015 This product specification is the property of Bank of Melbourne. It is for the use of Bank of Melbourne employees, contractors and accredited brokers only. It is not to be distributed to customers.
Product description The Family Pledge Home Loan will enable customers to maximise the amount that can be borrowed against their own security, using a guarantee from a family member. It will be a single loan or a Flexible Choice loan, secured by the borrower s property as the primary (1st) security in all cases, with a limited, supported guarantee ( Family Pledge ) from family members, defined as grandparents, parents, siblings or sons or daughters of the borrower(s). The guarantee is to be supported by a registered first mortgage over the family member s property or a registered second mortgage. Family members not meeting the above definition (such as uncles or aunts), family members who are Non-residents, and non-family members fall outside of this policy in determining an acceptable guarantor, and may only be considered on an exception basis. The guarantee is structured so that the guarantor s liability is limited to a specified amount and, at the request of either the borrower or the guarantor at any time during the loan term, they can ask to be released from the guarantee. The Bank of Melbourne (also referred to as Bank ) will consider each request, but generally only if, at the time of the request, the loan balance and Loan to Value Ratio (LVR) are reduced to the level where Lenders Mortgage Insurance (LMI) is not required or where the borrower is prepared to pay an LMI premium. The guarantor(s) or borrower(s) may request a revaluation of the borrower s property at any time, subject to the payment of the requisite valuation fee at the time of the request. A short form valuation of the borrower s security property will be required to confirm the LVR of the borrower s loan. Providing the LVR is under the LMI threshold or the borrower is prepared to pay the required LMI premium, the guarantee and any mortgage that supports it, can be released, providing the above conditions are met. This is not an event which is initiated by the Bank, or which occurs automatically or at a predefined time during the loan term, but at the borrower s or the guarantor s request, and which will be subject to the Bank s consent at that time. The guarantor will also be informed that, in terms of the Code of Banking Practice, the Bank will not take action under that guarantee until action against the borrower has been unsuccessful, as defined in the Code, clause 31.14: The Bank will not, under a Guarantee, enforce a judgment against you unless: we have obtained judgment against the principal debtor for payment of the guaranteed liability which has been unsatisfied for 30 days after we have made written demand for payment of the judgment debt; or we have made reasonable attempts to locate the debtor without success; or the debtor is insolvent. This structure will provide the guarantor with certainty of the value of their guarantee and allow them to have their property released much earlier than would normally happen. Key Benefits / Target Market The Bank of Melbourne Family Pledge option was introduced mainly for customers who can utilise the assistance of family members to maximise the amount they can borrow against their purchase property. This feature attracts a new group of customers to Bank of Melbourne and further widens our ability to meet a variety of customer s needs. It is targeted at both homebuyers and investors that have good ability to repay but lack the sufficient equity to secure the additional funds they need to meet up front loan establishment costs and other expenses associated with the purchase of their home or investment property. Key benefits are: This feature gives borrowers and guarantors certainty as to the limit of the guarantee, and has the potential for the guarantors to be released from the guarantee much earlier than is currently the case with the current guarantee process. The benefits for the borrower are: Allows them to maximise the amount they can borrow up to 100% of the purchase price, plus costs such as Stamp Duty and Legal Fees. Helps to reduce or avoid payment of LMI. The benefits for the guarantor are: It will allow the guarantor to nominate a specific amount the guarantee is limited to, rather than a traditional open guarantee for the entire loan amount. The guarantor can ask us to release them from the guarantee at any time (standard credit policy in regard to LVRs apply). They will also benefit in that the Bank will not take action against them until action against the borrower has been unsuccessful, as defined in the Code of Banking Practice. As an example, a customer wishing to purchase a $300,000 property wanting to borrow $285,000 would have an LVR of 95%, which would incur an LMI premium. Page 2 of 5
If a family pledge guarantee of $60,000 was added as additional security, the LVR would reduce to 79%. The LMI premium would then not be payable, which could save the customer up to $5,800. Eligibility The following eligibility criteria must be met for Parental Guarantee/ Family Pledge: Individual applicants are now restricted to a maximum of one parental guarantee/family pledge borrowing. No single guarantee is to represent more than 50% of the guarantor s security. Applications where borrowers seek to consolidate small personal debts such as credit card or personal loans into the loan amount are an exception requiring referral to and consideration by MCT on a case-by-case basis. Refinances are not acceptable under Family Pledge policy. Availability The Family Pledge option is available on the following Home Loan products: Standard Variable Rate home loan Advantage Package home loans Fixed Rate home loans Basic Home Loan Construction loans are permitted, except in the case of owner-builder applications. It is not available on any other loan type. Existing loans Family Pledge is not available for refinancing. Increase to loans with family pledge is allowed but the Family Pledge amount may not be increased. Loan Amount Refer relevant Product Specifications Applications where borrowers would also like to consolidate small personal debts such as a credit card or personal loan into the loan amount may be considered as exceptions by the Bank. Such applications will only be considered on an exception basis where a good credit history is evident on the debts to be repaid and will depend on the overall profile of the loan application. In such cases guarantors must be specifically informed of any debt consolidation to be undertaken. Loan to Value Ratio (LVR) Normal LVR policy applies for the Family Pledge loan. The dollar value of the limited supported guarantee, in addition to the borrowers residential security property will be used to determine the LVR. Example: Security Mortgage by Borrower over acceptable security Limited Guarantee for $xxx from family member supported by mortgage from guarantors over acceptable security valued @ $600,000 Option 1 Option 2 Security Value (SV) Security Value (SV) $500,000 $500,000 $125,000 $80,000 Total Security Value $625,000 $580,000 Loan Required $500,000 $500,000 LVR (loan amount / total security value) 80% 86% The LVR policy for each residential security property type will determine if LMI is required. In normal circumstances LMI would be required in option 2. The security value of the supporting security is to be equal to, or greater than, the amount of the guarantee. Page 3 of 5
Serviceability Normal Serviceability Policy to apply. Savings / Equity Normal Savings / Equity policy will apply. Note that it is not a requirement for applicants to evidence 5% genuine savings for Family Pledge Home Loans where LMI is not required. Fees Fees are subject to change Refer to the interest rates and fees section of the website for current fees and charges. There are no extra fees for the Family Pledge Option. The standard guarantee and legal fees will apply. Security Normal Acceptable Security Policy to apply. Limited Supported Guarantee from Family Member The Bank will allow a guarantee limited by a dollar amount from a family member, supported by acceptable security in terms of policy. However, the following additional restrictions will apply to the guarantor s security: The security value of the supporting security property is to be equal to, or greater than, the amount of the guarantee. The supporting security property must have sufficient equity available, after taking into account any existing (prior) mortgages, pledges or other liabilities, to cover the dollar amount of the guarantee up to a maximum total LVR that would not require LMI under the Bank s normal LVR policy. A registered second mortgage behind an existing (prior) first mortgage (either to the Bank of Melbourne or other financial institutions), is acceptable to support the guarantee OTHER THAN where the existing (prior) mortgage is a reverse mortgage-styled facility (including the Bank s Senior Access Home Loan product) whereby the Bank is unable to establish a defined amount for priority under the first mortgage. Only one property can be used as the pledged security but that property can be used for more than one Family Pledge. The Bank does not take a third party mortgage, but takes a: first party mortgage from all mortgagors guarantee from mortgagors who are not borrowers, supported by a mortgage Any legal action taken under the guarantee will be in terms of section 31.14 of the Code of Banking Practice: which states: We will not, under a Guarantee, enforce a judgment against you unless: we have obtained judgment against the principal debtor for payment of the guaranteed liability which has been unsatisfied for 30 days after we have made reasonable attempts to locate the debtor without success; or the debtor is insolvent. For the LVR calculation on the Family Pledge loan, the Security Value will be the amount of the guarantee. See LVR calculation above. Releasing the guarantee The Bank will consider requests to release of the limited supported guarantee (and related Mortgage) when: The LVR, based on the Security Value of the borrower s property and Total Security Exposure (TSE) does not require LMI (in terms of the prevailing policy at the time of the request). An updated valuation is required to determine the Security Value. If LMI is still required, the borrower does have the option of paying the LMI premium based on the current LVR. Repayment history for all borrowers home loans to be satisfactory. Repayments on any of the borrower s unsecured loans (Credit Cards, Personal Loans) are not in arrears. The guarantee can be released at the borrower or guarantor s request. The borrower or guarantor may request a revaluation of the borrower s property at any time, subject to the payment of the requisite valuation fee at the time of the request. A short form valuation of the borrower s security property will be required to confirm the LVR of the borrower s loan. Providing the LVR is under the prevailing LMI threshold(s) or the required LMI premium is paid, the guarantee and the mortgage that supports it, will be released, providing the above conditions are met. The release of the security property is not an event which is initiated by the Bank, or which occurs automatically or at a predefined time during the loan term. Consideration to releasing the guarantor from the guarantee will occur at the borrower or guarantor s request, and will be subject to the Bank s consent at that time. Page 4 of 5
LMI Valuation Normal LMI policy will apply. The guarantor must have sufficient equity in their property such that LMI would not be required in order to support the limited guarantee being provided refer Limited Supported Guarantee from Family Member section above. Normal valuation policy will apply to each property being provided as security (including the guarantor s property). This document is owned and updated by Bank of Melbourne Intermediary Distribution and is subject to change. Terms and Conditions and fees and charges apply and are available on request. All applications are subject to Bank of Melbourne s prevailing credit criteria. 2015 Bank of Melbourne A Division of Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714. BOMW0004 07/15