Guarantor Home LoanDiscussion around offering guarantee for home loan

To many parents around Australia the words Guarantor Home Loan sends shivers down their spin. In the past a Guarantor loan meant losing your house if the person you are guaranteeing does not pay their home loans. In today’s market things have changed and loosing the house if your kids don’t pay their home loan is unusual to say the least. There are many different types of Guarantor Loan on the market now.

Limited Guarantee Home Loan

There are 2 types of Guarantor Loans on the market at present. They are:-

  1. Security Guarantor
  2. Serviceability Guarantor

These methods can be also combined to include 2 options at the same time for a borrower who has the potential to have both types of guarantors.

Security Guarantor Home Loan

In this situation the Security Guarantor is in fact guaranteeing only 20% of the value of the house. Often clients use this type of loan to negate Lender Mortgage Insurance as the client has 20% equity of the property. when considering a Security guarantee loan, one must be conscience of the fact that Some lenders will take an unlimited security guarantee, whilst other lenders will take a limited security guarantee.

Limited Security Guarantor Loan

A limited security guarantee loan limits the amount of security a  guarantor offers. Hence if there any recourse, the maximum a lenders can claim under is limited to a specific agreed amount.

Unlimited Security Guarantor Loan

With an unlimited security guarantee loan, a lender takes security over the prime property being offered as security and also the additional security property. With the unlimited guarantee and in the case of recourse, a lender can claim up to the full amount owing from the guarantors security property.

In the past applicants for  security guarantor types of loans needed anything from 24 – 48 months or more to build enough equity to release the guarantor from their obligations.

When looking at a security guarantee loan, its best to discuss the various options with a Mortgage Providers broker as we could guide you through the different lenders policies which best suite both the borrower and the guarantor.

Serviceability Guarantor Home Loan

As the name Serviceability guarantor home loan implies, this loan is for a customer who does not have the income to support the proposed home loan. Most clients who apply for a serviceability guarantor loan have a situation where their income is temporarily less than what is required to service the loan. For example, a student completing studies and will go into full time employment in a reasonable time.

The intention with a serviceability guarantor type of loans is for the customer to build their affordability as quickly as they can and then release the Guarantee.

It is also recommended that the applicants apply for income protection insurance to ensure the guarantor’s interests are protected.