Compare guarantor home loans
Compare guarantor home loans that can help you buy a property without being charged LMI, even if you're struggling to save a deposit. Guarantor home loan interest rates and fees can vary widely, so make sure you compare your options.
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Sign of future hikes? More banks lift 4-year fixed home loan rates
RateCity research has found that since 1 March, 16 lenders have increased 4-year fixed home loan rates. This is no doubt being influenced by comments from RBA Governor, Philip Lowe, indicating that the cash rate is unlikely to increase until inflation targets are met – potentially in 2024.
What is a debt-to-income ratio, and how does it impact your mortgage application?
A debt-to-income ratio (DTI) compares the amount of money you earn to the amount of money you owe to various lenders and credit card providers. It’s used by lenders to judge whether you can repay your mortgage comfortably or not.
What is a guarantor home loan?
Guarantor home loans are mortgages where the applicant has a guarantor who will take responsibility for the home loan repayments should the applicant default.
A guarantor is typically a parent or close family member of the applicant, using the value of the equity in their own home as additional security. The guarantor may agree to guarantee the full mortgage, or may choose a limited guarantee that only covers part of the loan. This may allow a borrower to buy property with a lower deposit and/or without having to pay Lender's Mortgage Insurance (LMI).
Guarantor home loans are sometimes considered bad credit home loans, as they can help applicants who don’t have a good credit score.
Who offers guarantor home loans?
Guarantor home loans are offered by a limited number of lenders in Australia. Each of these lenders has its own unique criteria – including who can and can’t be a guarantor – so check your eligibility and the product disclosure statement before completing a loan application.
How much will a guarantor home loan cost me?
Like any other home loan, the cost of a guarantor home loan will depend on your loan amount, loan term, interest rate and any fees. For example, if you took out a $400,000 guarantor mortgage over 30 years with a 4 per cent interest rate and a $10 monthly fee, you'd pay $1,920 per month, for $691,078 in total (plus stamp duty, and any other upfront or ongoing fees and charges). You can use a home loan calculator to estimate the cost of your mortgage repayments.
Keep in mind that a guarantor home loan may charge higher interest rates and fees than some other home loans on the market. Once you've had some time to make repayments on your mortgage and build up equity in your property, you may be able to refinance onto a lower-rate home loan without the need for a guarantor.
How much can I borrow with a guarantor?
With the help of a guarantor, it may be possible to borrow up to 105 per cent of the value of the property you’re buying. For example, if you’re looking at purchasing a $500,000 unit, you may be able to borrow as much as $525,000. This could help you cover not just the property’s purchase price, but other upfront costs such as stamp duty and moving expenses.=
The exact amount you’ll be able to borrow will depend on your bank or mortgage lender, as well as your financial situation and that of your guarantor, such as how much equity the guarantor holds in their own property.
Can you use a guarantor home loan for an investment loan?
It is possible for your parents or family members to guarantee an investment loan for you, though not every lender will offer this option. There may be additional terms and conditions involved, depending on the lender, due to the generally higher financial risk involved with investment properties compared to owner occupied properties.
Are guarantor home loans mainly for first home buyers?
Guarantor home loans are traditionally associated with first home buyers. However, it may also be possible for other borrowers to make a purchase with the help of a guarantor. Check the lender’s eligibility criteria to find out if you can only get a guarantor home loan when you refinance or buy an investment property or owner-occupied home, or if you can only get a family guarantee as a first home buyer.
How do you compare guarantor home loans?
When comparing any loans, such as guarantor home loans or bad credit home loans, you should consider the interest rate, fees, features and repayment schedule.
Comparing guarantor mortgages can help you secure the best rate and choose the features that suit you.
When you compare loans, it’s best to pick a loan that you are confident in repaying so that you don’t default on your payments.
What are the benefits of guarantor home loans?
If you take out a guarantor home loan, you might be able to:
- Enter the market sooner if you're a first home buyer
- Qualify for discounted interest rates
- Avoid paying lender's mortgage insurance (LMI)
- Buy a new home or investment property with a more expensive purchase price
Can you use guarantor loans alongside other government grants?
Combining a guarantor home loan with government grants and concessions may allow you to purchase property with additional support.
For example, a first home buyer may be able to use their state’s First Home Owner’s Grant (FHOG), the First Home Super Saver Scheme (FHSSS) or the federal government’s First Home Loan Deposit Scheme (FHLDS) to make up for part of the home loan’s required deposit. A guarantor may be able to cover the remaining deposit, which may also help to limit the level of risk to the guarantor.
Check with your mortgage lender and your local or federal government office to confirm the eligibility requirements for both a guarantor home loan and any other available grants or support services.
How can you improve your chances of being approved for a guarantor home loan?
To improve your chances of being approved for a guarantor home loan, check the lending criteria. Some lenders only allow a parent to be a guarantor, while others may have more relaxed rules. Choosing a guarantor who has good credit and a close personal relationship to you can help you secure a guarantor home loan.
Also, it’s important to explore ways to make yourself look like a more reliable (and therefore less risky) borrower. Here are five ways you might be able to achieve that goal:
- Increase your income: Get a second job, work more hours, ask for a raise
- Reduce your spending: Cut back on non-essentials like socialising, booze, clothes, holidays, taxis
- Increase your savings: Sell unwanted items
- Boost your employment profile: Stay in your job for longer, ask to move from casual or part-time to full-time
- Cut back on credit cards: Lower your credit limit or even cut up your card
Who can act as a guarantor?
Most banks only allow parents to be guarantors for home loans. Some will consider guarantees from immediate family members like siblings, grandparents, spouses, de facto partners or adult children. Close friends and workmates are usually not accepted. If your guarantor is someone other than your parents, you may have to meet other lending conditions to qualify as a borrower.
How do you take out a guarantor home loan?
Taking out a guarantor home loan is a more time-consuming and complicated process than taking out an ordinary home loan.
With an ordinary home loan, only the borrower needs to provide proof of identity, income, savings and assets, but with a guarantor home loan, the guarantor also has to take all of these steps. The lender may conduct a valuation of the guarantor's property to confirm that they have sufficient equity to guarantee the loan.
Also, the guarantor will have to provide a legal promise to pay off the mortgage in the event that the primary borrower fails to do so.
What are the pros and cons of guarantor home loans?
While guarantor home loans can have a big upside, they can also have serious consequences and so should never be entered into lightly.
When guarantor home loans work well, they allow Australians with small house deposits and/or bad credit to become first-time home owners and enter the property market ahead of schedule, qualify for cheaper interest rates, or avoid paying lender’s mortgage insurance (LMI). In an ideal scenario, the borrowers then make all their repayments on time, so that the lender never has to trigger the guarantee.
But not all guarantor home loans go according to plan. Some borrowers fail to make repayments – perhaps because they lose their job or get a divorce. When that happens, the guarantor is expected to make the repayments. This might force parents to postpone their retirement, come out of retirement, sell the family home or some combination of the above. That in turn might lead to a breakdown in the relationship between the borrower and the guarantor.
What are some alternatives to guarantor home loans?
If you’re struggling to save up for a deposit or need a home loan with bad credit, there are alternatives to guarantor home loans.
A parent-assisted home loan is one option, which resembles receiving a gifted deposit. As a gifted deposit won't count as genuine savings, you will have to pay back this gift to your parents with interest for it to be accepted by a lender.
Another option is to take out a mortgage with a loan to value ratio (LVR) of 95 per cent or even 97 per cent. While this means saving up a much smaller deposit compared to the property's value, you'll also need to consider the cost of Lenders Mortgage Insurance (LMI).
Both of these options are potentially risky, so it’s best to get independent financial advice first to see what may best suit your financial situation. For example, you could consider contacting a mortgage broker.
Example: Jennifer’s parents must pay
Jennifer and her partner wanted to buy their first home, and asked Jennifer’s parents to guarantee the loan. She assured them that repayments would be made on time, but a few months after securing the loan, Jennifer lost her job, her partner ended the relationship and both parties stopped making repayments. As such, Jennifer’s parents became responsible for the entire loan. Although they had agreed to act as a guarantor, the situation caused a high level of frustration and conflict between Jennifer and her parents.
What are guarantor loans called?
When you're researching guarantor loans, remember that some lenders use different names for these loan products, such as ‘Family Pledge’, ‘Family Equity’, ‘Family Support’, ‘Family Guarantee’ and ‘Fast Track’. But whatever the name, they all refer to a security guarantee.
There are differences between every lender’s credit guidelines, loan types and discounts for family guarantee loans. Doing your own homework can lead to savings.
Should I be a guarantor?
Becoming a guarantor is a major decision so it pays to seek independent financial advice before you jump in, and try to answer these questions:
- How big is the guarantee that you are committing yourself to? Can you cover the ongoing mortgage payments if the borrower folds?
- When will you be liable to cough up money? Usually, banks and other lenders will proceed if the mortgage is in arrears for three to six months.
- How credible is the person that you are acting as guarantor for? One has to be brutally honest in answering this, especially if it involves your own son or daughter.
Keep in mind that becoming a guarantor can 'tie up' the equity in your own property, so you may not be able to use it to secure other credit products. Becoming a guarantor can also affect your credit score.
How long will a guarantor home loan last for the guarantor?
Like most other mortgages, a guarantor home loan will typically run for 20 to 30 years or longer. However, a guarantor may not need to have their own finances tied up in this loan for the full mortgage term.
Once a borrower has paid their loan for a few years, and has built up equity in their property, they may be in a position to refinance their mortgage. Depending on their financial situation, they may no longer need a guarantor when they refinance, as the equity in their property may be enough to cover the required home loan deposit.
This could let their guarantor off the hook, “freeing up” the equity in their own property for use elsewhere.
Do I need expert advice if I’m a guarantor?
Being a home loan guarantor is a big commitment and you should seek expert financial and legal advice from appropriate professionals.
It is desirable that before applying you have a preliminary discussion with your lawyer and then put the “guarantee and indemnity’ documents for legal scrutiny before signing on the dotted line.
One should also have an exit strategy in mind. For example, if the loan is for 25 years, you don't have to be involved for that period. Extra payments and refinancing can help remove the guarantee in two to five years.
The guarantor’s risk can also be minimised by their children if they procure insurance for their own mortgage so the guarantor’s property is protected.
Personal Finance Writer
Alex is a personal finance writer and PR professional at RateCity, and has been writing about finance for over three years. She is passionate about closing the gender pay and superannuation gap, and aims to help young Aussies to overcome their financial apathy and better manage their finances. Alex has been published in numerous print and online outlets, including Money Magazine, Lifehacker Australia, and Business Insider.
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Frequently asked questions
What if I can't pay off my guaranteed home loan?
If you can’t pay off your guaranteed home loan, your lender might chase your guarantor for the money.
A guaranteed home loan is a legally binding agreement in which the guarantor assumes overall responsibility for the mortgage. So if the borrower falls behind on their mortgage, the lender might insist that the guarantor cover the repayments. If the guarantor fails to do so, the lender might seize the guarantor’s security (which is often the family home) so it can recoup its money.
How do guaranteed home loans work?
A guaranteed home loan involves a guarantor (often a parent) promising to pay off a mortgage if the principal borrower (often the child) fails to do so. The guarantor will also have to provide security, which is often the family home.
The principal borrower will usually be someone struggling to find the money to enter the property market. By partnering with a guarantor, the borrower increases their financial power and becomes less of a risk in the eyes of lenders. As a result, the borrower may:
- Qualify for a mortgage that they would have otherwise been denied
- Not be required to pay lender’s mortgage insurance (LMI)
- Be charged a lower interest rate
- Be charged less in fees
What does going guarantor' mean?
Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.
Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.
What are extra repayments?
Additional payments to your home loan above the minimum monthly instalments, which can help to reduce the loan’s term and remaining payable interest.
What is a line of credit?
Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.
This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.
Should I become a guarantor?
You should carefully weigh up the pros and cons before signing on as a guarantor – because while it can be very rewarding if everything goes according to plan, it can have serious consequences if the plan goes awry.
If the person you’re guaranteeing keeps up with their mortgage repayments, you’ll be able to take pleasure in helping them fulfil their dream of home ownership.
However if that person fails to meet their mortgage repayments, it might damage or destroy your relationship. Your finances might also be affected if the lender asks you to make the repayments or even seizes your home to settle the debt.
What is a guarantor and guarantee?
A guarantor is a person, third party or organisation that agrees to guarantee your loan.
The guarantee is a legal assurance given by the guarantor to pay the loan if the borrower defaults and is unable to pay.
How does a line of credit work?
A line of credit functions in a similar way to a credit card. You have a pre-approved borrowing limit and can draw on as little or as much of that sum as you need it, with interest paid on the outstanding balance.
How much can I borrow with a guaranteed home loan?
Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.
What is a guarantor?
A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.
Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.
Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.
However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.
Can you remove a cosigner from a home loan?
Taking out a home loan is an act of financial responsibility and a cosigner on a home loan shares that responsibility. For this reason, removing a cosigner from a home loan may not be straightforward. Usually, you can add a cosigner, or become a cosigner, when applying for the home loan. In such a circumstance, the lender may ask you to stipulate the conditions for a cosigner release, which are the terms for removing a cosigner from the home loan. For instance, you may agree that you can remove a cosigner once half the loan amount has been repaid.
However, not stipulating such conditions doesn’t mean it’s impossible to remove a cosigner. If the primary home loan applicant has a sufficiently high credit score and has not delayed any repayments, the lender may be willing to remove the cosigner. You should confirm that doing so doesn’t affect the terms of the loan. If the lender doesn’t agree to remove the cosigner, the primary home loan applicant may have to refinance the loan in order to do so. If there were specific reasons for needing a cosigner and those reasons are still valid, then you may have some challenges with refinancing.
How do I apply for a home improvement loan?
When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying.
Besides taking out a home improvement loan, you could also:
- Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement. Speak with your lender or a mortgage broker about accessing your equity.
- Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
- Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
- Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.
Can I take a personal loan after a home loan?
Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:
- Higher-income to show repayment capability for both the loans
- Clear credit history with no delays in bill payments or defaults on debts
- Zero or minimal current outstanding debt
- Some amount of savings
- Proven rent history will be positively perceived by the lenders
A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.
As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.
Can first home buyers apply for an ING home loan?
First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan.
First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates.
First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.
Is a home equity loan secured or unsecured?
Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.
A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want a good credit score to qualify for a home equity loan.
How much deposit do I need for a home loan from ANZ?
Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:
- A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
- The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
- If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).
Can I get a home renovation loan with bad credit?
If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan.
Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it.
Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.
How can I apply for a first home buyers loan with Commonwealth Bank?
Getting a home loan requires planning and research. If you are considering a home loan with the Commonwealth Bank, you can find the information you need in the buying your first home section of the bank’s website.
You can see the steps you should take before applying for the loan and use the calculators to work out how much you can borrow, what your monthly repayments would be and the upfront costs you’d likely pay.
You can also book a time with a Commonwealth first home loan specialist by calling 13 2221.
CommBank publishes a property report that may help you understand the real estate market. The bank has also created a CommBank Property App that you can use to search for property. The link to download this app is available on the same webpage.
If you are eligible for the First Home Loan Deposit Scheme, CommBank will help you process your application. The scheme helps first home buyers to purchase a home with a low deposit. You can read details about this scheme here and speak with a CommBank home lending specialist to understand your options.
How do I apply for Westpac’s first home buyer loan?
If you’re a first home buyer looking to apply for a home loan with Westpac, they offer an online home loan application. They suggest the application can be completed in about 20 minutes. Based on the information you provide, Westpac will advise you the amount you can borrow and the costs associated with any possible home loan.
When applying for a home loan with Westpac, you’re assigned a home finance manager who can address your concerns and provide information. The manager will also offer guidance on any government grants you may be eligible for.