Guarantor Home Loans Explained

A Guarantor Home Loan, otherwise known as an Additional Lender Loan, allows you to purchase property with someone else who will act as your guarantor if you default on your loan repayments. So, what does it mean to be a guarantor? And how do Guarantor Home Loans work? We explain all.

Who Can Be a Guarantor?

In Australia, a guarantor is someone who agrees to become liable for another person's debt if they are unable to pay it back. In terms of finance, it refers to a guarantor for a loan. A 'guarantee' is a legal commitment to repay any outstanding debts should your client be unable to pay them back. If you are looking at buying or refinancing an investment property, you might be required to have a Guarantor Home Loan.

Guarantor Mortgages: How Do They Work?

A Guarantor Home Loan is often a popular choice for first-time buyers because it allows them to purchase a property with a smaller deposit. A guarantor mortgage generally requires you to have someone (known as your 'guarantor') willing to act as an additional borrower and put their name down on any legal paperwork related to your home loan. This provides added security for lenders, making them more likely to accept your application. They typically have lower interest rates than normal mortgages and shorter terms (typically between one and five years). By agreeing to act as a guarantor on your behalf, they also ensure that you pay off any outstanding debt if anything goes wrong with your payments.

Can I Switch Lenders, and How Long Will I Need a Guarantor?

First, let's be clear: guarantor mortgages are like any other mortgage but attached with a few additional conditions. You still get to borrow money to buy a property, and you can still pay off your loan when you sell it in future (although there may be fees involved). If you don't sell or choose not to pay off your loan before your term is up, you'll keep paying until it gets sorted out. The main difference is that instead of going through a bank or building society when you want to borrow some money, lenders will ask someone else – usually someone who is 'credit worthy' - to sign as your guarantor.

What Is the Maximum Amount I Can Borrow with A Guarantor?

The amount that a guarantor can borrow varies from lender to lender and by individual circumstances – it's usually around 80% of what you could borrow on your own. Suppose your part of a couple or are willing to include non-essential assets as security (for example, equity in vehicles). In that case, it's possible to borrow up to 100% of your property's value.

Are There Any Benefits to A Home Loan Guarantor?

A Guarantor Home Loan has some unique benefits that might appeal to you if you have a steady income, financial support from your family, and need help with getting a loan. Guarantor home loans generally have lower interest rates and better repayment terms than other types of mortgage lending for those with less-than-perfect credit. With a guarantor loan, someone willing to stand behind you on payments steps in as a guarantor for your loan. The guarantor generally needs good credit or other income to provide financial assurance for your lender. This reassurance can help make it easier for you to get approved—and affordably repay—your loan.

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