A guarantor loan is a type of home loan where a third party provides their property as additional security for your loan, allowing you to buy a property with little or no deposit.
How do guarantor loans work?
Your guarantor will provide a guarantee for your home loan, which is secured on their property. In many cases, a borrower’s parents assist them in this way. The idea is for you as a borrower to get into the property market sooner. After you have paid off some of your loan or your property has increased in value, then you can apply to remove the guarantee. Guarantor loans have become very popular in recent years as they allow you to purchase with little or no deposit and some lenders now allow you to limit the size of the guarantee.
Who can be a guarantor?
Lenders often limit guarantors to the borrower’s immediate family members. Usually, this would be a parent, but guarantors can include grandparents and siblings.
Benefits of a guarantor loan
• You can buy a property with little or no deposit
• You can have your lenders mortgage insurance (LMI) waived
• Potential to access discounted interest rates