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Understanding Guarantor Home Loans

Monday January 28, 2019 ● By Emma Maidens // Place Estate Agents

new home buyers meeting with a mortgage broker

With first home buyers struggling to save enough of a deposit to break into the property market, it’s no surprise the popularity of Guarantor Home Loans is on the rise.

We sat down with Ruan Burger, from Time Home Loans, to understand what a Guarantor Loan is and who can benefit from it.

What exactly is a Guarantor Home Loan?

Guarantor Loans are a facility where parents can use their property or assets to assist their children to get into the market sooner. Having a guarantor means the borrower will be exempt of paying Lenders Mortgage Insurance (LMI) if they don’t have a 20% deposit saved.

What is Lender’s Mortgage Insurance?

Lender’s Mortgage Insurance is a payment a lender requires, protecting themselves in case you (the borrower) are unable to make your home loan repayments. It is generally required when the borrower has less than 20% of the deposit saved.

Lenders Mortgage Insurance is applied directly to the home loan, so while it isn’t an upfront fee you still end up paying for it. The smaller your deposit, the higher the cost of Lender's Mortgage Insurance.

finance meeting

What are the positives of Guarantor Home Loans?

  • Applicants aren’t required to pay Lenders Mortgage Insurance
  • Applicants can get into the market quicker than if they were to save the 20% deposit
  • Mortgage insurer doesn’t need to approve the deal

Are there potential risks?

  • It can limit the guarantor's future lending capacity
  • If the applicant’s default, then it can affect the guarantor

Are they more popular today than they used to be?

Yes, because of the high cost of Lender's Mortgage Insurance.

What demographic do you primarily see opting for this type of loan?

First home buyers are generally the demographic that utilises Guarantor Home Loans, with a family member, most commonly parents acting as the guarantor. This is due to the increasing difficulty first home buyers face to save the 20% deposit required to purchase a property.

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For any questions regarding Home Loans of any kind, contact Time Home Loans, the mortgage brokers dedicated to helping you secure your dream property today.