Overview
A guarantor home loan is a type of mortgage where a family member or close relative (the guarantor) offers their property or savings as security to support the borrower's home loan application. The guarantor provides assurance to the lender that they will cover the loan repayments or any default by the borrower if needed.
How It Works
With a guarantor home loan, the borrower typically does not need to provide a deposit or may be able to borrow more than they would otherwise qualify for. The guarantor's property or savings are used as additional security for the loan, reducing the risk for the lender.
Eligibility
Guarantor home loans are available to borrowers who may not have a sufficient deposit or who may not meet the lender's borrowing criteria on their own. The guarantor must have sufficient equity in their property or savings to support the loan.
Advantages of Guarantor Home Loans
No Deposit or Low Deposit: Guarantor home loans allow borrowers to purchase a property with little to no deposit, as the guarantor's property or savings provide additional security for the loan. This makes homeownership more accessible for borrowers who may not have saved a large deposit.
Bypassing Lenders Mortgage Insurance (LMI)**: By offering additional security through a guarantor, borrowers may be able to avoid paying LMI, which is usually required for loans with a deposit of less than 20%. This can result in significant cost savings for borrowers.
Access to Higher Loan Amounts: With a guarantor home loan, borrowers may be able to borrow a higher loan amount than they would qualify for on their own, as the guarantor's security reduces the lender's risk. This allows borrowers to purchase a more expensive property or avoid the need for additional finance.
Potential for Lower Interest Rates: Guarantor home loans may offer lower interest rates compared to other types of low deposit loans, as the additional security provided by the guarantor reduces the lender's risk. This can result in lower monthly repayments and overall interest costs for borrowers.
Assistance for First Home Buyers: Guarantor home loans are particularly beneficial for first home buyers who may be struggling to save a deposit or meet lending criteria. The support of a guarantor allows them to enter the property market sooner and with more favorable loan terms.
Build Credit History: Making regular repayments on a guarantor home loan can help borrowers build a positive credit history, which may improve their future borrowing capacity and financial prospects.
Overall, guarantor home loans offer borrowers the opportunity to purchase property with little to no deposit, bypass LMI requirements, access higher loan amounts, and benefit from potentially lower interest rates. This type of loan can be particularly advantageous for first home buyers and those who may not meet traditional lending criteria.
