Pink Finance
Family Guarantee Loans are used to assist home buyers to either avoid paying mortgage insurance or to get their foot in the door with little to no deposit.
So many times we come across would-be home buyers who have the ability to repay a mortgage but saving up for the deposit is the biggest challenge of all. At a Better Business Summit for Mortgage Brokers in 2017, it was stated that home loan affordability is not in crisis – in fact, this is the most affordable time to have a home loan since the 1990’s due to low-interest rates – it’s saving for the deposit that is the biggest barrier to entry to get into the market.
How Guarantor Loans can help
There may be an option whereby your parents or family member are able to go as a security guarantor so that the equity added to your deposit goes to 80% of the purchase price.
Guarantor Loans are now limited (a good thing for parents)
Guarantor loans are very different to what they used to be. The original guarantor loan would see the entire property of the parents / family members’ property to be used as equity. Now, a limited guarantee is held. That means the guarantee is limited to the amount that is necessary to obtain a 20% deposit.
If you have $100,000 saved and are looking to purchase a $700,000 property, you would be borrowing approximately $630,000 (after stamp duty and costs). This would incur mortgage insurance of up to $20,000. Your interest rate may also be higher.
When you are in mortgage insurance territory there are more requirements that you may need to satisfy such as:
- short term employment with a new employer
- no probation allowed
- proof of savings over 6 months.
If you were able to go with a family guarantee loan then the limited guarantee would be approximate $70,000. i.e the difference to ensure your loan is 80% of your purchase price.
What if my parents already have a home loan?
We can speak to their current lender to see if they allow for a family guarantee. If they do then we can consider using this lender to save your parents refinancing. However, it can be a great time to see if they can improve their home loan situation so we will certainly do a complimentary health check on their home loans. This may allow for an opportunity to consolidate any debts and improve their cash flow too! Double bonus!!
Term Deposits as Security for Guarantee
There are a couple of lenders that will also allow for Term Deposits to be used as the security for a guarantee. So in the scenario above, the $70,000 in a term deposit could be used as equity which protects the home to be used and you are still accruing your interest income from the investment. You are not allowed to access this term deposit until there is enough equity to be allowed to release the guarantee.
A significant contract to enter into – seek advice with us
Executing a family guarantee as security for a home loan can come with some risks. Defaults can occur, circumstances can change and repayment pressures can affect families, so it’s important to discuss these risks (as rare as they may be) with your mortgage broker. Our consultants can go through all the possibilities step-by-step to fully prepare everyone involved prior to taking on this loan structure.
When managed well with a professional, a family guarantee can be a very worthwhile way to enter the property market.
Get in touch today to discuss this option with one of our consultants.
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