Published: 8th October 2020
Becoming a guarantor for your children or family member may allow you to help a loved one achieve their financial goal of owning their own home. You can become a guarantor by using the equity in your own home or term deposit as security. Here’s what you need to know about the family pledge.
You can use your home equity.
Equity is how much you own of your home. As a guarantor, you can use the equity in your own home as security when it’s time for your child to borrow for their first home. The equity can contribute or be used instead of a cash deposit for their first home.
If your child does not have a 20% deposit, you can make up this gap with your home equity combined with their cash deposit as a guarantor. Ultimately this means they won’t have to pay Lenders Mortgage Insurance (LMI), which increases the repayments and the overall cost of the home loan. Being a guarantor helps your children in the long run, setting them up for financial success.
You can also use a term deposit as security.
Using your term deposit as security is a flexible option that allows guarantors who have perhaps downsized or do not wish to expose their property to risk.
This alternative approach to a family pledge still allows guarantors to benefit from the term deposit’s interest payments and help their loved ones get into their own home sooner.
5 Simple Benefits:
- The borrower can avoid Lenders Mortgage Insurance (LMI).
- Allows your loved ones to borrow 100% of their dream property value, helping them get into their desired property.
- Guarantors can be withdrawn from the loan once standard single security Loan to Value Ratio (LVR) requirements are met.
- Your loved ones can get into the property market sooner.
- There is no obligation for the guarantor to make the regular scheduled loan repayments, however please be aware of the below risks if your child cannot make their repayments.
Risk for guarantors
As a guarantor, you are liable for the amount specified in the guarantee. If the borrower doesn’t pay the loan, and you don’t have the funds to repay the loan, your home or term deposit may be taken to cover the debt. You will be required to seek independent legal advice before offering your home or term deposit to guarantee a loan.
Talk to us
Interesting in helping a loved one achieve their dreams? Get in touch with us.
Call us on 13 22 49 or submit an enquiry online.
Credit criteria, fees, charges, T&C’s apply. You will be required to seek independent legal advice before offering your home or term deposit to guarantee a loan.
Any advice given is of a general nature only and does not take into consideration your personal circumstances. Please consider the appropriateness of the advice before acting.