Using a guarantor on a new loan
A guarantor is someone, usually a family member, who owns a property and is willing to guarantee your deposit. The way it works is a guarantor uses their property to provide security for a part or all of your loan.
Some lenders only accept parents or relatives as guarantors and will look at criteria, such as the guarantor’s finances, credit, citizenship and age before accepting the security.
Guarantors are helpful if you are have little or no deposit as they can help you get into the property market sooner, help you avoid Lenders Mortgage Insurance (LMI) and access more competitive rates.
However, they do hold risks too. If you cannot make a mortgage repayment your guarantor's property might be at risk.
Refinancing a loan that's used as a guarantee
If you are considering signing on as a guarantor, it is a good idea to think about your future plans for your property before you do. One reason for this is you may not be able to sell your property or refinance your home loan during the time that you’re providing the guarantee. It is smart to consider seeking professional advice before you decide to become a guarantor so you can be sure it’s right for your situation.
Refinancing a loan that has a guarantor
If you have a guarantor on your loan, so long as you meet the lender’s criteria, you can usually refinance to a new loan with the existing guarantor or a new guarantee.
However, you should be aware that if you are looking to refinance your loan, many lenders will prefer that you have at least 20% equity built up in order to qualify to refinance your home loan, or you may need to pay LMI.
To find out more about your refinance options, talk to your Aussie Mortgage Broker.