Guarantor loans offer one of the most convenient ways to buy Cairns or Townsville new homes. This is especially true when you’re trying to get into the property market. Your guarantor, usually your parents, can lower the risk factor for financial loss on the lender’s part and help you buy your first home easier.
Here are some of the biggest advantages of applying for a guarantor loan:
Using the property of your parents as a guarantee inspires confidence in lenders. In turn, mortgage providers are incentivised to lend you 100% of the purchase price — or even higher. In fact, guarantor loans are the only mortgages that have no minimum loan-to-value ratio.
Non-borrowers of guarantor loans usually have to pay a portion of the property’s cost upfront. Many lenders require 20% to minimise the risk they have to take in the deal. Having a valuable guarantee, such as a house and lot, would suffice to convince your lender not to demand a deposit of any size on your part.
Guarantor loans render Lenders Mortgage Insurance (LMI) unnecessary. The guarantee itself will serve as the insurance for your lender. Normally, you’ll only be exempted from paying an LMI premium when you pay 20% deposit. Skipping this expense means maximising 100% of the loanable amount for your home purchase.
Some lenders are happy to offer loans secured on valuable properties they’re willing to negotiate for lower interest rates. Reducing your mortgage’s interest on any scale translates to savings.
Then again, choosing a guarantor loan doesn’t mean you won’t be required to show proof of genuine savings. This is usually equivalent to 5% of the purchase price. In most cases, you would still need to show savings accumulated for three months. Term deposits and shares held for three months are accepted, too. If you’ve been renting for a long time, some lenders would approve your loan application if you have a solid 12-month rental history.
Seeking assistance from parents to qualify for a guarantor loan won’t require a long-term commitment. Under certain conditions, like bringing the loan less than 90% of the property’s value, you can remove the guarantee. This way, you can free your guarantor of any liability for your mortgage in case of default.