What is a home loan guarantor?
A “guarantor” is usually a parent or family member, who takes on financial responsibility of paying off your mortgage, if you default on your payments.
The guarantor offers their own property or the equity in their property, as a security against your home loan. This provides the borrower a means of securing a home loan with a smaller deposit or borrow up to 100% of the property value or avoid paying Lender Mortgage Insurance, saving thousands of dollars.
While it can be great to help your children secure a home loan and break into the property market early, becoming a guarantor is a big decision and we recommend that you seek independent financial and legal advice to better understand the obligations and pitfalls before entering into a guarantor agreement.
What are the benefits of a guarantor home loan option?
A loan secured with a guarantor, is considered to be higher risk and not all lenders offer a guarantor home loan option.
Advantages to the borrower:
- Little or no deposit is required allowing you to borrow up to 100% of the property value.
- Reduce or avoid paying Lenders Mortgage Insurance.
- Some lenders offer reduced interest rates and debit consolidation.
- You can reduce your liability by opting to guarantee only a limited portion of the loan.
- Most guarantee agreements can be released between 2 to 5 years, given that the loan has been reduced or if there is equity in the property value – you’re not locked in forever!
- You can provide alternate financial assistance via a parent assist home loan or gifted deposit home loan.
Speak to one of our mortgage specialists and we can help simplify the ins and outs and secure the right loan for your needs.