What is a guarantor ?

September 22, 2014
Dora Platakis

What is a guarantor?

Many lenders will allow a related third party to provide additional security to help a family member buy their own home. The person providing this assistance is known as a guarantor. This is different to being a co-applicant or co-signer. A co-applicant will be included on the loan and will be responsible for the entire loan until such time as it is repaid in full. A guarantor, on the other hand, is linked to a loan by a guarantee. This guarantee can be released and the guarantor’s responsibility stopped without the loan being repaid in full.


How does it work?

A guarantor allows the equity in his or her own property to be used as additional security for the borrower’s loan. The primary security for the loan will be the borrower’s property. The lender will also take a mortgage over the guarantor’s property. This mortgage will not support the loan directly but will be used to support a guarantee from the guarantor.


Who can be a guarantor?

Guarantors are generally limited to immediate family members. Normally, this would be a parent but guarantors can include siblings and grandparents. Some lenders will allow extended family members and even ex-spouses to be a guarantor to a loan, but this varies depending on the lender.


How will having a guarantor help the loan application?

Having a guarantor may allow home buyers who have insufficient deposit but have the ability to make the required loan repayments, to secure additional funds to purchase a home. Saving a deposit can be the most daunting aspect for many purchasers and it can be very hard to do when you are also paying rent. By having a guarantor, the borrower may be able to borrow the full purchase price and sometimes even the costs associated with purchasing property.


Again this varies across lenders and some lenders will still insist that borrowers contribute some of their own equity towards the purchase, even if there is a guarantor. Another benefit of having a guarantor is that the borrower may save thousands of dollars by avoiding Lenders Mortgage Insurance (LMI).  


For any futher assistance regarding guarantor loans, dont hesitate to contact Dora and her team on:

Ph: 03 93605968  M: 0413636645


Posted in: First home buyers

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