Using Guarantor Loan To Get Into The Property Market Sooner
Dilleen Property Group 2023
If you’re trying to invest in property but don’t have enough funds yet, using a guarantor’s loan can help you quickly get into the property market.
A guarantor loan allows someone else such as a parent or relative to guarantee your mortgage with their own house, typically in the form of equity.
This adds security to the home loan of your first principal place of residence or even your first investment property and can potentially save you from paying a deposit.
How can Guarantor Loan benefit you?
Your guarantor pays 20% of your deposit using the equity of their own property. This payment can be split between you and your guarantor, paying 10% each or your guarantor can choose to cover the full 20% which can save you from paying a deposit. By leaving a 20% deposit, you can avoid having to pay for Lenders Mortgage Insurance (LMI). Additionally, some lenders allow you to put stamp duty and some of your closing costs on top of the loan which can further reduce your cost. Since guarantor loans help to reduce the lender’s risk this means that interest rates tend to be lower for the repayment too.
An Important Rule of Thumb
Before you decide to use a guarantor loan for your home loan, you must be certain that you are able to service the loan. Your guarantor is only providing security for your property while you are providing serviceability. If you run into problems repaying your mortgage, you may risk having the bank claim possession of your guarantor’s property to take back the money that was lent to you. Additionally, it is important to choose someone who is still working as your guarantor as it is unlikely for lenders to allow a retired person to become a guarantor.
Conclusion
Guarantor loans are a great way to enter the property market quickly as it is a great way to save yourself from paying for a deposit and other transaction costs. However, it is important to ensure that you are able to service the loan to avoid the risk of losing your guarantor’s property. For more information about obtaining finance, you can contact our recommended broker Justin Picker.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
