A Guide To Parental Guarantee Home Loan

Guarantors use their own property as security to either guarantee a portion or the whole loan against it. A guarantor is someone, who assumes responsibly for the loan when a borrower is unable to make repayments of the principal and interest rates which is why it reduces a borrowers risk in terms of the lender.

Types of Guarantees

Guarantor loans are those types of loans where they have a less cost initially as compared to the standard loan when it comes to dealing with the deposit. These loans are structured in a way which are protected by both; property owned by the guarantor and the property you are willing to buy. We have gathered down the most common and typically used guarantees;

  1. Security Guarantee

People who are willing to purchase a house for the first time with having a credit history but do not have enough money to pay no deposit are those who would go for the security guarantee. Here, this type of guarantor is called an equity guarantor commonly referred by the lenders. If the guarantor has a loan on their property, the bank may allow as a second mortgage as a security.

  1. Security and Income Guarantee

Parents who are willing to help their child or children who are students or do not have enough money to own a property often go for the security and income guarantee. Then lender will then use the property of the parents that acts as a guarantee and rely on their income to prove that the loan is reasonable.

  1. Family Guarantee

As the term suggests, family guarantee is that type of guarantee where the guarantor and a borrower have a direct relationship with each other. This direct relationship could be referred to as a spouse, parents, grandparents, de facto partners or siblings.

  1. Limited Guarantee

Limited guarantee is that type of guarantee where only a part of the loan is guaranteed by the guarantor. This type of guarantee is often used to reduce the potential liability with security guarantors secured on the guarantor’s investment. The guarantees in this type of guarantee have an option to either be unlimited or limited depending on both; the lenders and guarantors need and wants. Using a limited guarantee allows you to reduce the guarantor’s exposure to the mortgage loan.

It is best to consult and hire a mortgage broker or a specialist because there are various points to consider when applying for parental guarantee home loan. They will guide you better from the application process to the settlement process and the type of guarantee you should go for as per the guarantor’s requirements.

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