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. Different lenders may have slightly different rules about who qualifies as a guarantor. However, in general, most banks allow close family members to guarantee mortgage loans, as long as they are Australian residents with enough capital in their own homes, stable income and a good credit score.
We've established who those close relatives might be below. Under a family security guarantee, a family member with sufficient equity in their home can use it as a security guarantee for their loan. A guarantor is someone (usually a family member) who helps secure your mortgage loan and potentially increase your borrowing power. As the name suggests, a family security guarantee is when a family member secures their loan using their own equity (or sometimes cash).
This is a limited guarantee, which means that the guarantor has the final say on the amount he wants to commit. To secure the mortgage loan on this property, your parents are going to be guarantors. In some cases, siblings, adult children, grandparents, aunts and uncles can be your guarantor. But remember that every lender is different and will most likely take into account your specific circumstances.
Most lenders will want to know that you have a close relationship with this family member to avoid difficult situations. The effort may be worthwhile if you have a close family member who is eligible and willing to do you a solid favor, and both are in a stable and secure financial position. If you're thinking of having a family member as a guarantor, weighing your options, or just starting your research, we'd love to help you, no obligation. Costs, such as early withdrawal or repayment charges, and cost savings, such as waiver of fees, are not included in the comparison rate, but may influence the cost of the loan.
However, the rules about who can be a guarantor Home Loan and how guarantors are evaluated may change from lender to lender. If the borrower defaults or is unable to make repayments, the guarantor is responsible for repaying the loan amount. 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. Sometimes an uncle or aunt may be approved as a guarantor on your mortgage, depending on your relationship with the borrower.
Each lender works differently, but in many cases you can nominate the amount of the loan you are willing to guarantee and for how long you want to act as a guarantor. A security guarantor will remain on your mortgage until your loan is refinanced, special arrangements have been established with your lender, or the loan is repaid. Generally, people under 18 cannot be guarantors because they do not have all the legal responsibilities of adults. Get upfront discounted interest rates on eligible loans, ANZ setup disclaimer or continuous rate disclaimer and pay only for the extras you want.
However, in the event that someone makes you a guarantor, the risk to the lender is already minimized by having the guarantor's property as additional collateral. You can increase the principal on your loan by making additional repayments to reduce the loan balance faster or by looking for ways to increase the value of your property. This varies from lender to lender; some will continue to insist that you contribute part of your own capital to the purchase, even if you have a guarantor. So what does it mean for a parent or other person to guarantee their mortgage loan and what does it entail? If your family member can provide an attested legal statement confirming their close relationship with you, this can strengthen your case for a mortgage loan from the lender.