How a family guarantee works
The lender takes extra security over part of your parent's property, enough to bring your loan down to 80% or less of the total security. Your parent isn't guaranteeing the whole loan, only that part, and they don't make your repayments unless you can't.
Who can be a guarantor
Usually parents. Some lenders accept grandparents, siblings or other close family. The guarantor needs enough equity in their property, and some lenders also check that they could cover the guaranteed amount if needed.
The risks for the guarantor
- If you can't make repayments and the property is sold for less than you owe, the lender can recover the guaranteed amount from your guarantor
- Their property is tied up as security, which can affect their own borrowing
- Lenders usually require the guarantor to get independent legal advice first, and that's a good thing
Getting the guarantee released
Once your loan drops to 80% or less of your property's value, through repayments or rising prices, you can usually apply to have the guarantee removed. It often takes a new valuation, and sometimes a refinance. I'll tell you when it's worth checking.
Alternatives
If a guarantee doesn't suit your family, the 5% Deposit Scheme or a professional LMI waiver may get you there instead.
Questions people ask
What is a guarantor home loan?
A loan where a family member uses equity in their property as extra security, so you can borrow more than 80% without LMI.
Do my parents have to make my repayments?
No. They're only liable for the guaranteed amount if you can't repay and the lender can't recover the debt from your property.
Can I buy with no deposit using a guarantor?
Sometimes, though you'll usually still need money for stamp duty and costs.
How do I remove a guarantor from my home loan?
Once your loan is 80% or less of your property's value, you can apply to release the guarantee, usually with a new valuation.
How long does a guarantor stay on a mortgage?
Until your loan is 80% or less of your property's value and the lender agrees to release the guarantee. For many people that's a few years, sooner if prices rise.
