The easiest way to structure a family loan agreement

Family loans and why lenders care how they're documented

A family loan becomes part of your borrowing structure the moment it involves repayment terms or security over property. Lenders assess whether the loan increases your debt load, whether it creates a registered interest against the title, and whether it affects your ability to service the mortgage.

Consider a buyer in Coomera whose parents advance funds for a deposit with an informal agreement to repay over five years. The lender discovers the arrangement during credit assessment and treats it as an ongoing liability, reducing the approved loan amount by the monthly repayment figure multiplied across the serviceability buffer. Without documentation, the lender may refuse to proceed entirely.

A family loan agreement sets out the loan amount, repayment terms, interest rate if any, and whether security is required. It also clarifies whether the funds are a gift, a loan with no fixed repayment schedule, or a loan with defined monthly or lump sum repayments. The distinction changes how the lender calculates your borrowing capacity and whether the advance needs to be disclosed as a liability.

Gift or loan with no repayment terms

If the family member provides funds as a gift with no expectation of repayment, most lenders require a signed statutory declaration confirming the gifted nature of the funds. The declaration should state that the funds are non-repayable and that the family member has no interest in the property being purchased. This removes the amount from your liabilities and allows the full deposit to be counted as genuine savings or non-borrowed funds, depending on how long the funds have been held in your account.

Where the funds are described as a loan but no repayment terms are documented, lenders typically treat the arrangement as an interest-free loan with an unspecified term. APRA-regulated lenders may impute a notional repayment amount based on a standard loan term, usually three to five years, and include that figure in your debt servicing ratio. This can reduce your borrowing capacity even if you and your family member have no intention of formalising repayments.

Loan with defined repayment terms

A family loan with scheduled repayments must be disclosed to your lender as part of your home loan application. The agreement should specify the loan amount, the interest rate, the repayment frequency, the term, and whether the loan is secured or unsecured. Secured loans require registration on the property title, which creates a second mortgage or caveat. Unsecured loans do not involve registered security but still count as a liability when calculating serviceability.

Lenders apply the serviceability buffer to all ongoing liabilities, including family loans. At current variable rate settings, a $50,000 family loan repaid at $500 per month over ten years would reduce your maximum borrowing capacity by the monthly repayment amount plus the buffer margin. If you are using a split loan structure or considering a fixed rate component, the additional liability may shift the loan amount into a higher risk weight band under APS 112, particularly if your loan to value ratio exceeds 80 per cent and you are required to pay Lenders Mortgage Insurance.

Some lenders allow family loans to be excluded from serviceability calculations if the loan is formally subordinated to the primary mortgage and repayment is deferred until sale or refinance. Subordination means the family member agrees in writing that their loan ranks behind the bank's mortgage in the event of default. This arrangement is common where parents assist with a deposit but do not require regular repayments. The subordination deed must be prepared by a solicitor and lodged with the lender at settlement.

Coomera buyers and guarantor structures as an alternative

Coomera sits within the Gold Coast local government area and attracts a mix of first home buyers, upgraders and investors drawn to the area's proximity to the M1, Westfield Coomera, and the northern Gold Coast employment corridor. Median dwelling values in Coomera have been shaped by steady residential development and the area's appeal to families seeking larger block sizes and newer housing stock compared to established suburbs closer to Surfers Paradise.

For buyers in Coomera who need additional support beyond a cash gift or loan, a family guarantee may reduce the need for LMI or increase borrowing capacity without creating a liability on the buyer's side. Under a guarantee structure, a family member uses the equity in their own property as additional security for your loan. The guarantor does not hand over cash but instead allows the lender to register a limited guarantee or mortgage over a portion of their property's equity. This can allow you to borrow at a lower LVR or avoid LMI entirely, depending on the combined security position.

Guarantees differ from loans in that the guarantor's property is used as security rather than a source of funds. The guarantor remains liable only if you default, and the guarantee can usually be removed once your equity position improves through repayments or capital growth. A guarantee does not appear as a liability on your credit file, but it does appear on the guarantor's, which may affect their own borrowing capacity if they seek credit while the guarantee is active. Guarantor arrangements require independent legal and financial advice for both parties, and not all lenders offer them on the same terms.

What needs to be included in a written agreement

A family loan agreement does not need to be complex, but it does need to cover the elements a lender will ask to see during assessment. The document should include the names of the borrower and lender, the loan amount, the purpose of the loan, the interest rate, the repayment schedule, the term, and whether the loan is secured. If the loan is interest-free, state that explicitly. If repayments are deferred, specify the deferral period and the trigger event such as sale, refinance, or a set calendar date.

Include a clause confirming whether early repayment is allowed without penalty and whether the loan can be repaid in variable lump sums or only according to the schedule. Where the loan is to be secured, describe the security and confirm that a caveat or second mortgage will be registered. If the loan is subordinated to the primary mortgage, attach a copy of the subordination deed or refer to it in the agreement.

Both parties should sign and date the agreement, and each should retain an original. Some lenders require the agreement to be witnessed or signed in the presence of a solicitor, particularly where the loan amount is significant or the borrower's deposit is entirely funded by the family loan. A solicitor can also advise on stamp duty implications in Queensland, as loans secured by mortgage may attract duty depending on the structure and the amount secured.

How family loans affect refinancing and future borrowing

A family loan that was excluded from your original loan assessment may resurface when you apply to refinance or increase your borrowing. Lenders re-assess your liabilities at each application, and a loan that was treated as a gift or deferred liability initially may now be counted in full if circumstances have changed or if the new lender applies stricter criteria.

If you refinance to access equity for renovation, investment, or debt consolidation, the family loan will be reassessed based on the outstanding balance and remaining term. Where the loan was originally interest-free and is now accruing interest, or where repayments have commenced, your serviceability position may have shifted. Maintaining a clear record of all payments made and retaining copies of bank statements showing transfers to the family member will support your application and demonstrate the loan is being serviced as agreed.

For buyers considering investment loans or purchasing a second property, an undisclosed or poorly documented family loan can delay approval or result in a reduced loan offer. Lenders now routinely request bank statements covering six to twelve months and will identify regular transfers that suggest an ongoing liability. Transparency from the outset avoids complications later and ensures your borrowing capacity is calculated accurately.

A mortgage broker can work with you and your family member to structure the loan in a way that meets lender requirements without creating unnecessary complexity. We review the proposed terms, prepare the documentation, liaise with your solicitor where security is involved, and present the arrangement to lenders who are comfortable with family loan structures. Not all lenders treat family loans identically, and choosing the right lender at the start can make the difference between approval at the amount you need and a reduced offer that leaves you short.

Call one of our team or book an appointment at a time that works for you.

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