How to Use a Guarantor to Secure Your Mortgage

In a competitive market like Tasmania, aspiring homeowners and investors may face challenges when entering the market. One solution to financial hurdles is to secure your mortgage with a guarantor. Typically family members, such as parents, act as guarantors, offering their property as security for the loan. Here are key factors to know when using a guarantor.

1. Low Deposit Requirement

A key benefit of having a guarantor is the chance to buy a property with a smaller deposit. In some cases, you could have the option to borrow up to 100% of the property’s value, thus avoiding the typical 20% deposit requirement. As a result, it broadens property choices and makes the path to ownership simpler.

2. Avoid Lenders Mortgage Insurance (LMI)

A guarantor will boost your borrowing capacity and help avoid the costs of Lender’s Mortgage Insurance (LMI). LMI is typically mandated when borrowing exceeds 80% of a property’s value. As a result, this can lead to large cost savings.

3. Increased Borrowing Power

A guarantor can play a vital role in increased borrowing power. As a result of providing extra security lenders are more willing to offer a bigger loan.

4. Selecting a Guarantor

The guarantor must have ample value in their property and hold a strong financial position. They must grasp the potential outcomes, such as the risk of losing their property if the loan isn’t repaid. They should be well-informed about these aspects before committing to assist.

5. Legal and Financial Advice

Both parties in the agreement should get advice from a lawyer and a financial expert. This helps them understand their rights and duties better. It is a good idea to do this so everyone knows what to expect and the agreement works well for all.

6. Exit Strategy

Make sure you have a clear plan to release the guarantor from the loan. This usually means paying down the loan or waiting for the property value to go up. The goal is to keep the loan amount below 80% of the property’s current value. Planning ahead helps deal with changes and keeps things smooth when releasing the guarantor. Regularly check and adjust the plan to stay flexible and have a secure financial arrangement.

Making use of a guarantor can be a strong choice to secure your mortgage. This is especially true for first-time buyers or investors in regions like Tasmania. Additionally, It is important to know the responsibilities and risks involved. Talking openly and getting good legal advice will ensure the agreement benefits all. Speak to our friendly team for any guidance in your property goals.

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