A mortgage guarantor is the person who provides additional security for your mortgage loan. Most lenders prefer the guarantor to be a close relative, usually a parent, grandparent or sibling. Generally, people under the age of 18 cannot be guarantors because they do not have all the legal responsibilities of adults. Do you want to buy your first home as soon as you can? We explore 10 tips that first-time homebuyers can take advantage of to enter the housing market faster.
If you guarantee a loan for a family member or friend, you are known as the guarantor. You are responsible for repaying the loan in full if the borrower is unable to do so. If the borrower defaults or is unable to make repayments, the guarantor is responsible for repaying the loan amount. In some cases, a guarantor may request a loan release in circumstances where you have built up enough principal on your loan and have shown a history of paying your mortgage.
With a guarantor mortgage, you can borrow funds to buy a property with a small deposit, less than 20%, and avoid paying LMI. It's best to talk to your Mortgage Choice agent, who can look into your situation and understand how much you can borrow with a guarantor. A guarantor must have a good credit score, have equity in the property to use as collateral, and a stable income. Once the borrower has repaid the secured portion of the loan, the guarantor's property will be safe even if you don't pay in the future.
In some cases, your mother and father won't be able to act as guarantors on your mortgage because they don't have enough equity in their property or are about to retire. One way to get started early on the property ladder is to use mortgage loans with guarantors that can help more potential buyers enter their first property. But if you can no longer keep your payments, the lender will turn to the guarantor to make repayments. My wife, as a guarantor, is using her rental property as collateral and has already provided all the relevant details.
The role of a guarantor is generally limited to immediate family members of those seeking funding. As a guarantor, if the borrower is unable to repay the debt, you effectively assume responsibility for the mortgage loan. This is a considerable risk, so you should think carefully before agreeing to be a guarantor for your children. The main risk of becoming a guarantor is that if the borrower fails to comply with the loan agreement, you are legally required to make repayments or cover the outstanding amount of the loan.
It is important to understand that, depending on the lender's requirements, the release of a guarantor involves refinancing your loan and cannot be done automatically, so your lender may need to review your financial situation during the refinancing process.