One type of loan that is increasing in popularity for first homebuyers is the family equity product. These products are usually a limited or total "guarantee", which means the guarantor promises to repay the loan if the borrower fails to meet their obligations. There are advantages for borrowers to involve a guarantor in their property purchase - one of which may be avoiding the cost of lenders' mortgage insurance.
However, there are a number of downsides that borrowers and guarantors must be aware of. Borrowers are advised to talk with their family members, and receive independent legal and financial advice before obtaining a loan. Guarantors should ask questions such as how the borrowers intend to repay the loan, and are advised to conduct several checks with the lender before signing the guarantee.
Also, guarantors are warned about the 'co-borrowers trap', which is where they unwittingly become 'co-borrowers' when they thought they were 'guarantors'.
Find out why it is important for guarantors to be well informed before signing a guarantee in this article.
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