As mentioned above, the most common type of mortgage loan guarantor is a security guarantor. Therefore, if the borrower is unable to meet the repayments and you are the guarantor, the lender can sell your property to pay off the debt owed. Before you agree to be a guarantor, you should be aware that you may not be able to sell your property or borrow and recharge your mortgage. However, there are options you can consider if you really need to sell your property.
Again, remember that if you have borrowed 100% of the purchase price and sell less your property, the rest will remain in the ownership of the guarantee. So make sure your selling price covers the entire debt. Your mortgage guarantor can't stop you from selling your home. This is because they are not in the title deeds.
A guarantor is simply placed on the mortgage to collect payments if you are unable to make these payments. Maybe you or your potential guarantor have decided not to enter into a guarantee after all, but you still want to help. Therefore, when you sell your home, the guarantor must pay that second mortgage or you will have to refinance your property in order to add that second mortgage to your property. A professional, such as a mortgage broker, can help you consider all aspects of your finances before you apply for a guarantor loan.
If the guarantor wants to be released sooner, this is also possible, although it will require the borrower to take out an LMI premium in relation to the current loan-to-value ratio (LVR). Removing a guarantor with an 80% LVR is great because it will avoid paying a Lender Mortgage Insurance (LMI) premium. For this reason, it is essential that guarantors seek legal advice before entering into any security agreement. In the worst case, where your guarantor was unable to pay, the lender has the right to sell the guarantor's property to recover the amount of the limited guarantee.
The other option is that, once you sell, secure the guarantee with a dollar-for-dollar time deposit. New studies show that nearly 40% of first-time homebuyers rely on family assistance, whether it's a cash donation or parental endorsement. For example, they may not have enough capital to buy investment property with the current guarantee, or you may have a brother or sister who also needs a guarantor. In any case, it can be very complicated and expensive to remove the warranty if you want to sell, so it would be an important consideration before accepting the warranty.
A guarantor mortgage loan allows a close relative (usually a parent) to use the equity in their home as collateral for part or all of the mortgage loan. However, some lenders use a more liberal definition of the term “guarantor” than others and allow siblings, ex-spouses or even friends to become guarantors.