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GETTING A HELPING HAND

By Natalie Fasham

Many first home buyers using a home loan guarantor to help them get that first step on the property ladder.

Our Loan Market brokers will outline some pros and cons to using a guarantor allows you to purchase a property sooner and potentially save thousands of dollars.

By using the equity they’ve built up in an existing property, a guarantor can help you to buy a home or invest in residential property.

Best part is, they don’t need to actually provide you with any cash.

One of the most popular reasons that purchasers use guarantors is to avoid paying Lenders Mortgage Insurance.

This is a form of insurance that protects lenders from borrowers defaulting on loan repayments and is payable if you only have a small deposit.

Your guarantor helps you avoid this charge by providing a guarantee for your home loan which is secured on their property.

Pros

More buyers are turning to their families to help them qualify for their first mortgage.

Having a guarantor means you don’t need to save as big a deposit and because you can borrow more, you may be able to buy a larger property than you originally planned.

Some lenders will allow you to consolidate some minor debts into your new mortgage such as personal loans and credit cards, as long as they make up no more than 5-10 per cent of the purchase price.

A security guarantee is flexible enough that a guarantor can choose a limited amount of liability and can be released from the loan at a mutually agreed time, so the borrower doesn’t have to feel obliged to their guarantor for any longer than necessary.

Cons

The main drawback of using a guarantor is that you are putting their property at risk.

You could get sick or lose your job tomorrow and the lender would then turn to your guarantor for their loan repayments.

It is for this reason that anyone considering going guarantor for someone should seek legal advice before doing so.

It is a major financial decision and should not be entered into lightly and a solicitor can explain your legal rights and obligations and advise on the most prudent way forward.

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