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Mollie and Andrew wanted to buy a home worth $800,000. They had managed to save $40,000, which was 5% of the necessary deposit. As they needed a 20% deposit to avoid paying lenders mortgage insurance, Mollie’s parents, Rita and Tony, agreed to guarantee the necessary $120,000 by offering equity in their home.
Everyone was happy with these arrangements, but when Mollie did not go back to work after the birth of their second child, Andrew struggled to make the repayments. They asked Rita and Tony for $20,000 in order to keep up their loan repayments.
Rita and Tony were hesitant because they could see that Mollie and Andrew went on expensive holidays and always bought the latest gadgets. However, they reluctantly agreed to give the money, feeling that they had little choice because if Mollie and Andrew defaulted on the loan, Rita and Tony would be liable.