Everything You Need to Know About Guarantor Home Loans

What is a Guarantor Home Loan?

A guarantor home loan is when another person (such as a parent) puts up a property they own or have equity in as security or cash into a term deposit for the borrower, allowing them to borrow up to 100% of the purchase price of a home. This is known as giving a Security Guarantee. The person giving the security guarantee (the guarantor) usually has to be a family member.

Who Should Use a Guarantor Home Loan?

Guarantor home loans are most commonly used by first home buyers who do not have enough savings for a deposit. Even if they do have a deposit, first home buyers may still elect to use a security guarantee to eliminate the costs of lenders mortgage insurance. We are also seeing clients use guarantors when they choose to upgrade and purchase their second property. A security guarantee will allow them to upgrade the family home without Lenders Mortgage Insurance it there is not enough equity in the property they are selling.

Who Can Go Guarantor?

• The guarantor must meet all of the following criteria:
• A family member (although some lenders are now flexible on this)
• Has sufficient equity in their home or investment property
• Have access to cash to place in a term deposit

Protecting the Guarantors

It is important that the guarantor is not put in any unnecessary risk. Therefore, it is important to structure the guarantee to best protect the guarantor.

This can include:

• Ensuring the guarantee is a limited guarantee for the minimum amount. This means that if the worst happens, the bank will only have claim to the amount guaranteed
• Setting up the guarantee against an investment property rather than the family home, if possible
• Having an up to date will
• Having adequate insurance in place

Removing the Security Guarantee

Security guarantees should normally be removed once the borrower has either paid down the loan sufficiently or the property has increased in value sufficiently. A security guarantee is very rarely applied for the life of the loan.

Requirements to release the guarantor include:

• Good conduct has been maintained on your loan (i.e. no missed repayments)
• Your income is still sufficient to make loan repayments
• The loan amount is for no more than 90% of the property’s value

If you’d like to discuss whether a guarantor home loan is appropriate for your situation please call the team at Tiffen & Co and speak to one of our friendly mortgage brokers. As highly qualified, multi-award winning and experienced mortgage brokers, we can help you work out the best solution for your personal circumstances.