What is a home loan guarantor?
A guarantor can be an immediate family member or a spouse, who is able to help you get a loan by mortgaging their own property as additional security support for your home loan.
What are the benefits of having a guarantor?
- They can help you secure additional funds if you don’t have enough for the deposit
- You can borrow 100% or more of the property’s purchase price
- You can avoid paying for Lenders Mortgage Insurance (LMI)
- You can limit the size of the guarantee from 20% to 100% of the loan amount
- You may be eligible for discounted interest rates from certain lenders
- You can use debt consolidation when you buy your home
What are the risks of being a guarantor?
- You may need to help the borrower make the loan repayments if they fail to do so
- You can end up with a bad credit history if you and the borrower can’t pay back the loan
- You are liable for the borrower’s home loan should they default
- You may not be able to get credit in the future
- Your property offered as security is at risk of being sold to pay the outstanding debt
How and when do I remove the guarantee?
Generally, the borrower wants to release the guarantor as soon as possible to mitigate any risks given that their property is used as a security. The borrower should approach the lender and request for the guarantee be removed when: they can afford the repayments without further assistance, when the loan is ideally less than 80% of the property value, and when you haven’t missed any payments in the last 6 months.
What should I consider before going guarantor?
- Ensure that you can afford the monthly repayments before you commit
- Assess the character of the person who is borrowing the money and your relationship with them
- Confirm the amount you are guaranteeing and the conditions where you will be liable to pay
- Discuss other options to help the borrower purchase a property which are of lower risk
- Seek legal and financial advice
If you want to know more about guarantor loans and gain better control over your finances, contact us on 1300 CAP ONE (227 663) or fill in our Free Assessment Form.