As many of us have experienced, saving a deposit is both time consuming and frustrating! Saving a 20% deposit can be so difficult in a housing market where prices are consistently rising. Chances are you are paying rent at the same time, making it doubly difficult. Thought of a Guarantor?
When borrowing more than 80% of the property value you will also be slugged with a Lenders Mortgage Insurance (LMI) Premium. It never ends!
Guarantor Loans can provide a fantastic solution, getting you in to your own home quicker, and more cost effectively than paying LMI.
What is a Guarantor loan?
Your guarantor (normally an immediate family member) guarantees your home loan by offering their property as an additional security. That is, the bank holds both your property and your parent’s property as security. Most commonly, parental guarantees assist in buying first homes. Say you wanted to purchase a property for $500k, but only had $25k cash savings, your parents could guarantee an additional $75k plus costs against their property to reduce your lending value to 80% of the purchase price.
What are the benefits?
- Low or No deposit required.
- The Loan to Value Ratio (LVR) is kept at 80%, meaning no LMI is payable.
- You’ll avail yourself to more lender choices and more attractive rates
- You will be paying your own mortgage, not paying rent to reduce someone else’s.
When can I remove the guarantee?
You can request that your Guarantor & their security be removed once your LVR has reduced to 80%. Ways of doing this include:
- Make extra repayments on your loan so equity is built quicker
- Add value to your property, also building equity
What are the risks?
The person providing the guarantee is liable for your home loan if you default or cannot make your loan repayments. Whilst this shouldn’t deter you from exploring a Family Guarantee, it does present a major point of discussion between yourselves and the potential Guarantor. It is for this reason that most lenders will insist that the Guarantor has sought independent financial advice prior to agreeing
What if my Guarantor already has a mortgage?
To guarantee your loan whilst having a mortgage of their own, they’ll need to have enough available equity in the property. If this is the case, some lenders will consider a second mortgage for the purposes of the guarantee.
Why should I consult an expert?
Becoming a guarantor on someone else’s loan is a large commitment. It’s important that all parties are fully consulted prior to any application. The Guarantors should take financial & legal advice prior to committing themselves.
Some of the many benefits of utilising a Broker for a Family Guarantee:
- Getting approval: Different lenders have different policy. Using a broker can save time & ensure your application is submitted to a lender that meets your requirements.
- Know the terms and conditions: Some banks have simple terms and conditions for their guarantor loans and allow you to limit the amount of the guarantee. However, many lenders will not limit the guarantee which places the guarantor at higher risk if you cannot make your repayments.
- The exit strategy: The loan may have a term of 30 years; however, you don’t need to keep the guarantee in place for that long. We can help you work out a strategy of either making extra repayments or refinancing to remove the guarantee in as little as 2 to 5 years.
- The legwork: Your Broker will do all of the work for you, liaising with your chosen lender and any other parties such as Solicitors & Real Estate agents.
- A Complimentary Service: Your broker gets paid by your chosen lender upon settlement, meaning you receive the financial expertise without spending a cent!
There are many things to consider with a Family Guarantee. Call the team at Wilson Finance Solutions on 1300 438 547 or visit our Facebook Page for more information on how a Guarantor loan may suit your situation.