.png)
Guarantor Home Loan
Guarantor Loans: Unlocking the "Bank of Mum and Dad"
Breaking into the Australian property market can feel like an uphill battle, especially when trying to save for that elusive 20% deposit while renting. If you have the income to service a loan but lack the savings for a full deposit, a Guarantor Loan might be your solution.
Our empanneled brokers at Mortgage Counsel, help first-home buyers navigate this process, turning the support of family into the keys to your new home.
What is a Guarantor Loan?
A Guarantor Loan allows a close family member (usually parents) to use the equity in their own property as additional security for your home loan.
In Australia, this is frequently referred to as tapping into the "Bank of Mum and Dad”. However, unlike a cash gift, no money typically changes hands. Instead, your guarantor offers a portion of their home's value to secure your mortgage, reducing the risk for the lender.
The Mechanics:
1. Security Guarantee: Your guarantor provides a limited guarantee (secured against their property) to top up your deposit.
2. Avoid LMI: Because the lender views the loan as having a full 20% deposit (thanks to the guarantor), you generally avoid paying LMI.
3. Two Loans (Optional): Often, the loan is split. One portion covers the 80% value of the property (secured by your new home), and the smaller portion covers the remaining 20% plus costs (secured by the guarantor).
4. Releasing the Guarantee: Once you pay down the guaranteed portion of the loan, or your property value increases enough to hold 20% equity on its own, you can apply to release the guarantor.
The Benefits for Buyers
• Enter the Market Sooner: You don't have to wait years to save a massive deposit while property prices potentially rise. You could enter the market with zero deposit.
• Save Money: Avoid the "dead money" cost of Lenders Mortgage Insurance (LMI),which can save you between $10,000 and $30,000 depending on the purchase price.
• Better Rates: With a guarantor reducing the Loan-to-Value Ratio (LVR), you may qualify for more competitive interest rates compared to standard low-deposit loans.
• Borrow for additional costs: In some cases, having a guarantor allow you to borrow for additional costs such as stamp duty, conveyancing etc. What this means is that you could borrow up to 100 percent of the purchase price plus costs (stamp duty and legal fees).
FAQ`s
Generally, lenders prefer immediate family members. This usually includes parents, but some lenders may accept siblings,grandparents, adult children or even ex-partners. Each lender has its own rules. The guarantor must have sufficient equity in their property.
Yes. can borrow with no deposit using a guarantor.You could potentially borrow for costs such as stamp duty and legal costs.How much you can borrow depends upon your capacity to borrow which is determined by your income,expenses and liabilities.
The guarntors and still use their property to provide a guarantee,provided there is sufficient equity in the property.
No. You, the borrower, are fully responsiblefor the mortgage repayments. The guarantor is only called upon if you default on the loan and the sale of the property doesn't cover the outstanding debt.
While guarantor loans are most common for Owner Occupied purchases, some lenders in Australia do allow guarantor arrangements for investment property purchases.
Yes-many lenders allow a limited guarantee, so the guarantor is only liable for a defined portion(rather than the full loan). This is often the preferred approach.
Yes! In fact, that is the goal. Once your property value has increased or you have paid down the loan enough so that you owe less than 80% ofthe property's value, you can apply to the bank to release the guarantor.
No.Guarantor loans use the guarantor's home equity as security.
You are responsible for repayments. If you default and the debt can't be recovered from you, the lender may pursue the guarantor for the guaranteed portion, which could put their property at risk.
Yes.Some lenders allow this.The gurantor can use the property to provide additional guarante,subject to there being equity in their property.
