Guarantor Home Loan explained
About this page: Welcome to our guarantor home loan information page. This page is designed to assist you in understanding the basics of this type of loan. This will allow you to have an understanding of some of the pros and cons associated with a guarantor home loan.
There is a lot of generalized comments and opinions surrounding this type of loan. Those comments are often from uninformed people who simply do not understand the structure of this loan or how the whole process works.
These loans are not without risks, but using blanket statements that are designed to scare everyone away from this type of loan is just wrong. All loans have risks, which is why the banks issue contracts on every loan.
We are going to simplify the benefits and risks associated with the Guarantor Home Loan.
About Our services:
- Our brokers are experts in obtaining home loan approvals and specifically trained in loan structuring and credit policy. This ensures the best possible outcome for your needs.
- We provide an Australia wide service, at no cost to you.The lenders pay us a commission for the introduction of your business.
- Our website is designed to help borrowers understand the differences between loan types and the importance of having a mortgage broker to assist you in finding the right lender.
What is a Guarantor Home Loan?
A guarantor is another person/s or entity that agrees to be responsible for a loan applicant’s debt, if the applicant fails to pay the lender. Sounds scary? Well, that will depend on a lot of factors that we will be covering in this section.
There are different structures for guarantor home loans. Some lenders require the guarantor to be responsible until the entire debt is repaid in full.
Some lenders also provide a facility called a limited guarantee. Under a limited guarantee, once the applicant has paid their loan balance down to 80% of the home’s value, the guarantor can be released.
For the purposes of this information page, we will only be discussing the limited guarantee, as that is normally the facility that we would try to obtain for our clients.
Can anyone be a guarantor for me?
Most lenders will only use a guarantor who is a parent or sibling, however at the time of writing this article, (February 2015) we have access to one particular lender who will now use “anyone” to be a guarantor, provided that they meet the expectations of the lender.
We would expect the other lenders to get on board with similar features in the near future as none of them like to lose business. Here are some of the features that this particular lender is offering:
- Guarantor does not have to be a parent or sibling. It could be a friend for example.
- Debt consolidation or borrowing extra funds option is possible.
- Limited guarantee – the guarantor can be released when the applicants loan is paid down to 80% of the property value.
- Second mortgage is acceptable provided the guarantor’s lender provides consent.
- Can be used for refinance, purchase and construction of owner occupied or investment property.
- There is no mandatory requirement for the guarantor to seek Independent financial and legal advice.
There are several benefits to look at when a guarantor home loan is being considered. The benefits of this type of loan are not just for first home buyers. This loan can benefit anyone borrowing over 80% of their properties value, provided that they qualify.
How does a Guarantor Home Loan help me?
There are limits to what you can do when using a guarantor, please speak with your mortgage broker about your options.
This loan may be suitable for the following types of scenarios:
- First Home Buyers who want to get off the rental merry go round and into the property market. Please see our How does a Guarantor Home Loan help a First Home Buyer? page.
- Debt Consolidation for First home Buyers.
- Spousal Payout and Debt Consolidation Loan (divorce).
- Upgrading to a new home and selling your previous home.
- Purchase of investment property in certain circumstances.
- Lending to avoid Lenders Mortgage Insurance costs.
To assist you in understanding the Guarantor Home Loan even better, please read our other pages.
What are the names used by the lenders for Guarantor Home Loans?
Nearly every lender has some form of guarantor home loan, they just use different names for these loans.
Some of the more common guarantor loan names:
- ANZ – uses the name Family Guarantee Loan
- St George – uses the name Family Pledge Loan
- Westpac – uses the name Family Guarantee Loan
- Commonwealth Bank – uses the names Family Support Loan, Guarantor Loan and Guarantors Support Loan (not confusing is it?)
The list goes on. They are essentially the same facility with a different name, however the loans themselves can vary in features, benefits and of course, downsides.
Credit policies, loan types and loan structures vary from lender to lender and need to be assessed on a case-by-case basis.
These types of loans are purely designed to try to cut costs for the customer, and in reality, provide more stability for the lender and let’s not forget, create more business for the lenders.
How can I apply?
These are your simple steps to apply for a loan.
- Contact us on the numbers above to speak to a mortgage broker, or complete our online enquiry form.
- You will speak with a broker who will take into account your needs by discussing your requirements. They will also cover any concerns that you have, and offer you some possible strategies and ideas that you may not have thought about.
- Once we know what you require, we will draft and email you a proposal– this will usually consist of a few options that are easy to understand.
- Once you have had a chance to look at what options are available, you can contact your broker or the broker will call you, to discuss the proposal.
- You can then decide if you wish to proceed or you may just want to discuss more options.
What are my other options?
There are many options available:
- Other loan types such as variable interest rate, a fixed interest rate, interest only loan, equity loan or any of the other loans are available. It is important that you find out what is available to you before applying for a loan.
- The loans listed below are available for most lending purposes. Whether you are refinancing your home loan to a lower rate, or a property investor looking to buy that second or third property. We will have some ideas for you to consider.
- Even if you are a first home buyer purchasing a new home or renovating your existing home. There are some great deals available from the banks and lenders that we are accredited with.
- Please click on a link below to learn more about other loans that are available to you.