Something that I am seeing more of recently is guarantor home loans. On average, I submit 5 guarantor home loan applications every month. Why so many you might ask? Because guarantor home loans can potentially save you thousands of dollars in mortgage insurance, and I ensure all my clients are fully aware of all their options.
To help you get your head around exactly how this money can be saved, I thought I would first outline a bit about guarantor home loans. A guarantor home loan is when another person (such as a parent) puts up a property they own (or have equity in) as security, allowing the borrower to borrow up to 107% of the purchase price of a home without needing a deposit.
So how does it help you avoid paying lender’s mortgage insurance? Normally, when someone borrows more than 80% of the property value, the bank will insist you pay mortgage insurance incase you cannot repay the debt. If you choose to use the guarantor home loan option, then this insurance is waived.
The way this works comes down to how I structure the loan, keeping in mind that one of the main goals here is to pay off and release the guarantor as quickly as possible. I structure it so that the “mum and dad” is protected, ensuring that they are not at risk of losing the family home or the property they have offered as security. I utilise both Principle and Interest and Interest Only loans to ensure you release the guarantor as quickly as possible. I am more than happy to sit down with you and your parents to discuss how this would work in your particular circumstance. In case you are unaware, our services at Tiffen & Co are 100% free!
Although this is a great option for first home buyers, I am seeing a lot of other clients utilise this type of home loan too. Many clients use guarantors when they choose to upgrade and purchase their second property or if they have recently lost a lot of savings due to a bad investment or separation. Take an example I had recently, where a client in their 40s had a very good income but had recently separated from her partner and didn’t have the deposit then and there. Her parents went guarantor for the purchase and it allowed her to purchase the property without incurring mortgage insurance.
Guarantors also have the option of utilising a limited guarantee which is where the guarantor can minimize the amount of guarantee or equity used. The beauty of this is that they can then use the remaining equity for other purposes, such as for their own investment or be the guarantor for more than one child.
I have done hundreds of guarantor home loans for my clients over the years, all of whom have been very happy with the outcome. I have even been a guarantor myself and the experience was a good one. I was able to help someone I care about and I think it strengthened our relationship.
Two other things I always stress to my clients when you come and meet with me is; one- the importance of wills; and two- insurance. To fully protect you and the guarantor, you should ask yourself: when was the last time I had my will updated?
The second thing I stress to my clients is the importance of having the appropriate insurances in place such as income protection and trauma. Now, this not only applies to guarantor home loans, but all Australians. Often, people don’t know what they are/aren’t covered for and 9 times out of 10 are paying way too much for an inferior cookie-cutter product. What’s more, they don’t find out until it’s too late because they have never utilised the expertise of a professional to have a policy drafted specifically for their circumstances. You might be fooled into thinking that this would be more expensive than purchasing one yourself- but you would be wrong. Very, very wrong. I can’t stress enough how important and beneficial it will be to sit down with a professional risk insurance specialist. Luckily, we have Katherine Hayes, an in-house Risk Insurance Adviser. Like our mortgage broking service, Katherine’s services are 100% complementary and after meeting with her, you will have a clearer understanding of your personal coverage and have acquired vital knowledge to make the right decisions.
To discuss guarantor home loans or to simply see if we can assist you with your current mortgage or insurances, please call and book an appointment on 02 6260 7880. At Tiffen & Co, we’re with you.
Gerard Tiffen is a multi award winning broker and has been a permanent fixture in the Top 10 Brokers in Australia for the past 11 years.
As Managing Director of Tiffen & Co, Gerard specialises in sourcing and structuring a wide range of home and investment finance packages for his clients.
Gerard has always been interested in property and is an avid property investor himself – over the past 15 years Gerard has amassed a property portfolio in excess of $10,000,000. His willingness to share his personal and professional expertise with his clients is unsurpassed. He understands that structuring finances correctly from the outset will ultimately save time and money, as well as make it easier to diversify your investment portfolio in the future.