Guarantor mortgage scenario
Let's look at the process with an example guarantor scenario:
- Jai and Rahda purchase a $600,000 apartment with a 5% deposit ($30,000).
- They estimate their lenders mortgage insurance (LMI) premium using Finder's LMI calculator and are shocked to learn they'll need to pay $22,789.
- Rahda's parents own their home outright. They agree to guarantee a further 15% ($90,000) of the property cost. This eliminates the LMI cost completely.
- Jai and Rahda repay $100,000 of their loan principal over the next 5 years. Rahda's parents are no longer liable because the $90,000 they guaranteed has been repaid.
Can my mother act as guarantor if she is 85 and owns her property outright?
Hi Janelle,
Generally, a guarantor must be over 18 and typically under 65.
Thanks,
Rebecca
I know Westpac permit Guarantor’s to use a fixed term instead of their property to enable their children to achieve 20% and therefore not be liable for LMI. NAB no longer provide this since the Banking Royal Commission. Do you have a list of Lenders that provide Guarantor Loans with the security as Fixed Terms instead of the property. It seems illogical to provide a property as security when it is worth ten times the security required. Hope you can help.
Hi Ray,
Banks and lenders change their policies frequently. At the moment, we don’t compile a list of banks that offer guarantor loans secured against savings/fixed income instead of property, because the demand for this information is quite small, and the policies change too frequently for us to keep on top of them.
Westpac is one of the few banks that offer this type of guarantee, but interestingly BankWest, which is owned by Westpac, won’t accept a term deposit and requires property as security.
You also generally need to refinance the loan to the bank your child is taking their loan out with, so there’s a lot to consider when considering becoming a guarantor.
Hope this helps!
Cheers,
Sarah
We are selling an investment property which we have used as a guarantee for sons apartment which he is renting out while he works in Sydney.
His present bank require him to refinance and seem unwilling to use our home as equity. He has negative equity in the apartment due to recent alterations.
We want to transfer the guarantee onto our home which is paid for.
We have no outstanding debts. His
Are there any financial institutions that would accommodate this transfer.
Hi Keith,
Thanks for reaching out.
Best if you can speak to a mortgage broker who can take into account your circumstances as well as your son’s. They know a wide range of lenders in the market who can give more options for your son.
Cheers,
May
We want to buy a house and looking into no deposit Lon with a guarantor but only my partner works $45k a year and I am on centrelink and we have two children. Would it be possible that any bank would lend to us we are looking at a house $160k
Thanks
Hi Rachael,
Thanks for getting in touch.
Your ability to qualify for a home loan will depend on several factors; your combined income, assets, liabilities, credit history, and the lender’s eligibility criteria for a particular product.
Unfortunately, it can be difficult to qualify for a home loan if you’re receiving Centrelink benefits and if only one applicant is working as the lender may view you as a high-risk borrower. However, there are mortgage brokers who can help you find lenders, such as specialist or non-bank lenders, that are more likely to review your application.
You can read more about no deposit home loans and you can also compare 95% loan-to-value (LVR) home loans. We also have an article about home loans for Centrelink recipients which may help you.
When you apply for a no deposit or guarantor home loan, the application process can be more lengthy compared to a traditional home loan as the lender will need to assess the security and financial position of your guarantor. However, you can take measures to improve your chance of being approved. This may involve reducing your existing debts (e.g. credit cards) and making regular deposits into high-interest savings account to show the lender that you have financial discipline.
All the best,
Belinda
Can I get a guarantor loan if the guarantor lives overseas and their equity is in the property they own overseas?
Hi Jade,
thanks for the question.
Lenders generally require the guarantor to be Australian citizens, although some lenders will allow them to be working or living overseas. If the loan is being secured with the equity of a property (and not cash), the property is usually required to be in Australia.
I hope this helps,
Marc.