Find out what a Guarantor means for Australian homebuyers
Saving up a deposit for a home loan can be difficult, especially if you are a middle to low income earner. This is when having a guarantor can give your home loan application the headstart it needs. Any third party that is neither a co-applicant nor a co-signer on your application and willing to provide further security towards the purchase of your home loan is eligible to be a guarantor.
Unlike co-applicants and co-signers, guarantors can withdraw from the loan any time they want. Guarantors generally tend to be family members however depending on your lender there may be provisions to consider allowing non-family members to act as your guarantor.
The lender will take a mortgage over the guarantor’s property as well as yours. Some lenders might insist that borrowers contribute some of their own equity towards the purchase but this is not always the case.
Having a guarantor means that you could avoid Lenders Mortgage Insurance (LMI) which is a guarantee for the lender on home loans with an LVR greater than 80% of the property value. Although the LMI covers the lender, it is the borrower that pays the premium. The amount of the guarantee depends on the lender’s policy, which can vary from case to case.
Once a borrower has built up equity in their property, a guarantor may be released from the loan albeit the borrower may need to pay an additional fee to release the guarantor. A guarantor could potentially assist with both repayments as well as putting their own property up as security for the loan to assist with the purchase.
Before getting a guarantor involved, we highly recommend that you consult the matter with a financial adviser.
To find out which banks offer guarantee’s please call SwitchMyLoan on 1300 307 155.
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