Guarantor Loans

What is the role of the guarantor?
​A guarantor is someone who provides a guarantee for your home loan by securing their own property.
The aim of this strategy is to get into the Australian property market early.
You can normally remove the guarantee once part of the loan has been paid or if the value of the property you're buying increases.

How is a guarantor home loan structured?
A guarantor is the only loan type that allows you to borrow 100% of the property price even if you haven’t saved a deposit.
In a guarantor loan, the lenders use both the property you’re buying and the guarantor’s property as security for the loan.
The guarantor can also choose to limit the guarantee, which means they can only secure a part of the loan.
The banks assume that the value of the guarantee reduces your loan to under 80% of the property value. This is why the requirement to pay Lenders Mortgage Insurance (LMI) is waived by the lenders.

What are the risks involved?
The guarantor is ultimately liable for the part of loan they have guaranteed.
If the person they have guaranteed fails to meet their loan obligations and defaults, the guarantor will be responsible for the amount they have guaranteed.
This can put them at a great risk depending on the amount of assets or exposure they have on the mortgage.

When can the guarantee be removed?
Generally, you can release the guarantee once you’ve paid off a significant part of the loan or if the property has increased in value.
The process to remove the guarantee is quite easy and may sometimes only require you to sign a form.
Removing the guarantee early can help the guarantor rest at ease.

Do I have to pay fees?
You may be liable for some minor administration and government fees, depending on the lender you apply with.
An LMI premium may be added if your home loan exceeds 80% of the property value. This is because the banks consider your mortgage to be riskier because you don’t have additional security.

What if the guarantors have another mortgage?
This shouldn’t be a problem considering that some of our lenders can still secure a guarantee on the guarantor’s property, provided that they have sufficient equity.
Lenders normally use a second mortgage to do this.
However, lenders will only consider this if the total debt secured on the guarantor’s property is less than 80% of the value of their property.
For instance, your guarantor has a mortgage with $150,000 owing and they need to give a limited guarantee of $100,000. The total debt secured on their property will be $250,000.
To be eligible for a guarantor loan, their property needs to be worth at least $312,500.

Call us today for a more in depth discussion regarding Guarantor Loans.

Guarantor Loan 

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