Guarantor Loans
Guarantor Loans
Many lenders allow a family member to help their kids or other family member to buy their own home by providing additional security. The person providing this assistance is known as a guarantor. This is different to being a co-applicant or co-signer. A co-applicant is included on the loan and will be responsible for the entire loan until it’s repaid in full.
A guarantor, on the other hand, is linked to a loan by a guarantee. This guarantee can be released and the guarantor’s responsibility stopped without the loan being repaid in full. To use a guarantor, the customer must be able to service the entire loan on their own income.
If a customer is not able to save up a deposit, or the wish to avoid paying Lender’s Mortgage Insurance (LMI), a guarantor can help. Most commonly, a guarantor is the parent or a relative of the customer. They will assume responsibility of paying off the loan, if the customer is no longer able to meet their financial commitment.
Example of a guarantor loan structure
KIDS NEW HOME PARENTS HOME
Value: $450,000 Value: $650,000
Loan: $360,000 (80% LVR) Guarantee Loan: $95,000 (20% dep + costs)
In most cases, the parents can keep their own home loan at the bank they are already with and the kids bank will take a second mortgage against the parent’s home. This is called a limited liability guarantee and is usually for 20% of the value of the kids home plus some extra to cover costs. The parents own bank will not allow them to go over 80% LVR including the loan they are guaranteeing for the kids.
Each loan will be assessed based on the applicant’s individual circumstances and will vary from lender to lender. If you are interested in learning more about guarantor loans or would like to meet one of our brokers to discuss your personal situation, please call us on 07 3264 7100 or email admin@cornerstonehomeloans.com.au to make an appointment.
Written by: Tracie Palmer for the Cornerstone Group 15 September 2022
