Guarantor home loans are similar to family pledge loans. In Australia, guarantor home loans are the only way to borrow between 100 and 110% of a property’s value. With a guarantor loan, 80% of the loan will be secured on your property, and the other 20% will be secured on your guarantor’s property.
Who Can Be a Guarantor?
Most lenders require family members to be guarantors. The most common guarantors are parents, especially in young people just starting out in the workforce who are buying their first home. However, adult children may also act as guarantors, particularly if their parents try to buy a house and are close to retirement.
How do they work?
Your family member will provide their home as security for your home loan. This security allows you to buy a home sooner than you might otherwise be able to. In addition, once you pay off part of your loan and have enough equity in your home, you can remove your parent’s from the loan.
What are the risks?
There are risks to guarantor home loans. Most of them affect your guarantor because they are legally responsible for the home loan if you default on your home loans. If you default on your home loans, your property will be sold to recoup some debt. If there is still debt remaining, your guarantor is responsible for paying the rest of the debt. In some cases, they may be forced to sell their own property; however, this is the worst-case scenario. Many lenders try to avoid this whenever possible.
Mortgage House is a non-bank specialty lender that specialises in guarantor home loans. We can assess your situation, find lenders who will approve your application, and find a competitive loan for you.
