How could having a guarantor, or being a guarantor, impact refinancing?
A guarantor is someone, usually a family member, who owns a property and is willing to guarantee your home loan deposit. A guarantor uses their property to provide security for a part or all of your loan.
Some lenders may only accept parents or relatives as guarantors. Other lenders may look at criteria, such as the guarantor’s finances, credit, citizenship and age before accepting the security.
Guarantors could be helpful if you have little or no deposit. 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 or the guarantor may be liable to cover your outstanding repayments.
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 go ahead. One reason for this is that you may not be able to sell your property or refinance your home loan during the time that you’re providing the guarantee.
It’s smart to consider seeking professional advice before you decide to become a guarantor, so you can be sure it’s right for your situation. Your Aussie Broker will be able to guide you through refinancing as a guarantor.
If you have a guarantor on your loan, you can usually refinance to a new home loan with the existing guarantor or a new guarantee. This is if you meet the lender’s eligibility criteria. Doing the right amount of research before committing to a loan agreement is a good idea.
However, you should be aware that if you are looking to refinance your loan, some lenders may prefer that you have at least 20% equity built up. If you’re not able to provide 20% equity, you’ll likely be asked to pay Lender’s Mortgage Insurance on your newly refinanced home loan.
To find out more about your refinance options, speak to your Aussie Broker.