Our Family Guarantee is structured as two separate loans. The first loan is secured by the home you buy, and is for the majority of that property’s value. The second, smaller loan is considered to be the guarantor loan. It’s secured by the house you’re purchasing, as well as a portion of the equity in your guarantor’s property.
You need to make the minimum monthly repayments on both loans yourself. Keep in mind that your guarantor will be liable for the part of the loan that’s secured against their property if you’re unable to make the repayments – but they don’t have to be liable forever. Once you’ve paid off the second loan, you can apply to remove the guarantee. You could even pay extra off the smaller loan if you want to release the guarantor’s property as soon as possible. Note that early loan repayment fees may apply on some home loans.
For example
Let’s say you’ve got a $50,000 deposit and you’d like to buy a house that’s worth $500,000. This would mean that your deposit is 10% of the property’s purchase price, and you’d have to pay LMI on the remaining 10%. Instead of proceeding with your 10% deposit alone, a guarantor could offer $50,000 (the remaining 10%) of their home equity, making up 20% of your home loan security – saving you that LMI.
Similarly, a guarantor could offer $100,000 of their home loan equity to be used as security on your loan, meaning you wouldn’t need a deposit at all.
There are many things to consider, and you and your potential guarantor can sit down and talk about them face to face with a Home Lending Specialist. They can meet at a time and a place that suits you – even weekends and evenings. They’ll also be able to help you with next steps to apply. It’s also important that your guarantor gets independent financial and legal advice so they understand what they’re potentially signing up for.
For more info about what to consider, take a look at some things you should know about becoming a Guarantor (PDF).
You can also find out more about what it means to be a guarantor on ASIC’s Money Smart website.
Get in touch with a Home Lending Specialist, and they’ll respond within one business day. You can talk on the phone, meet at a branch, or have a Mobile Lending Manager come to you.