guarantor loan

[Scoobalimalima]

Hi again all,

I have another question,

I am looking to purchace a 600k property, with my current savings and investment property etc I am about 60-70k short of ther magic 80% LVR, I have just read about the banks letting you use a guarantor for the loan to help get to the 80% mark and save on LMI. I was just wondering what the actual process involves for the guarantor? I was thinking of asking my mum to help me out, she has two properties and owns both of them, does she just sign a few forms and that's it or is it more involved?

Cheers,

SLL

 

[Rolf Latham]

Hi SLL

Called a family guarantee, or a family pledge.

Generally often to be avoided where the sole PPOR is involved as the guarantee property and your contrib would be little. Not the case here

Lots of guarantor mumbo and legal paperwork, but properly managed and risk assessed, it can be an useful

WOuld an 85 % no lmi refi and purchase work for you ?

ta
rof

 

[Mick C]

Depending on the bank( but most of them ) requires your mum's place to be under their control/mortgage as well ( 1st mortgagee).

Your mum needs to fill out a loan form as well- not just a letter....if you ask the bank/broker they will give you a copy of the form to fill out.

Sometimes paying a bit of LMI is not the end of the world, just depends how much this LMI is and what benefit it would bring. As rolf mentioned, 85% NO LMI are available.

Regards
Michael

 

[marty29]

Hi SLL,

As Rolf pointed out, it is best to stay away from 'security guarantor'.

However, if you are keen to buy this property and your mum is willing to help, best find a bank who allows the guarantor to nominate a specific amount
the guarantee is limited to.

Also, the lenders will want a full guarantor loan application form from your mum. Depending on the security offered and/or her income, they may require her to get an independent legal advice.

Cheers.

 

[Marty McDonald]

Some lenders are better than others in terms of what paperwork is required from the guarantor. As mentioned you should go with a lender who only requires a limited guarantee ie just enough to get you to the 80% mark. That way Mum is only guaranteeing that amount not your whole loan.

 

[The Sniffer]

It is not a limited guarantee that is the answer. When you look at the major 4 the guarantees will almost always reflect the full amount of the loan. Not negotiable.

To get around this you need two loans.

• One at 80% LVR with no guarantee (purchase)
• The second for the balance (secured against mums house) with a guarantee

So your are limiting your guarantee by splitting loans. Not by getting an actual "limited guarantee".

As others said above- the guarantee will need to be secured against an investment property - not mums own home (general but not always).

CBA, NAB, ANZ and St George will do 2nd mortgage for the guaranteed loan - CBA charge 1st mortgage rates and no fee for the deed of priority (they do charge a $200 guarantee fee).

I've never needed to get anything from the guarantor apart from ID and forms signed.

.

 

[MikeF]

It is not a limited guarantee that is the answer. When you look at the major 4 the guarantees will almost always reflect the full amount of the loan. Not negotiable.

To get around this you need two loans.

• One at 80% LVR with no guarantee (purchase)
• The second for the balance (secured against mums house) with a guarantee

So your are limiting your guarantee by splitting loans. Not by getting an actual "limited guarantee".

As others said above- the guarantee will need to be secured against an investment property - not mums own home (general but not always).

CBA, NAB, ANZ and St George will do 2nd mortgage for the guaranteed loan - CBA charge 1st mortgage rates and no fee for the deed of priority (they do charge a $200 guarantee fee).

I've never needed to get anything from the guarantor apart from ID and forms signed.

.

Sorry to say Sniffer but I disagree..... As an example the ANZ guarantee document is limited to a specific amount and I think you will find the others are the same.

As to a "2nd mortgage"...................why?

 

[The Sniffer]

Hi Mike,

The specific amount listed on the guarantee is set by the loan amount (in most cases). Most lenders wont allow this to be a lower amount than the loan.

Also if all in one loan and the loan is reduced - the guarantee is still there. It is not listed as "the first $xxx" repaid etc.

If you split the loans - the guarantee will be closed once that smaller split is paid off - therefore less risk to the guarantor. Therefore if you take the 80% interest only you can knock out the guarantee quite quickly. Far better than having the guarantee connected to the core long term debt...

Second mortgage allows the mum to keep her current loan (if she has one) where ever it is. If she refinances it she will need to provide full income details etc.

Snif

 

[Scoobalimalima]

Hi guys,

Cheers for all the replys.

I have now decided to steer clear of the Guarantor loan option, sounds to complicated and risky.

I have not heard about these 85% no LMI loans, who offers them? Is there a catch?

My partner and I are just really frustrated as our current combined income is over 200k a year but currently due to a small deposit/equity we are struggling to get finance for a 600k purchace price, and/or getting stung with huge mortgage insurance.

SLL

 

[The Sniffer]

Hi Scoobalimalima,

Why not work out how much you are prepared to pay - then you can work out the time you need the guarantee for... This will give you a better understanding of the risk.

For example.

If you believe you can pay 5k p/m:

• 480k (80% 0f 600k) - no guarantee. Repayments approx $2800 p/m (IO @7%)
• 70k guaranteed by mum - repayments approx $2200 (7%)
• Total repayments = $5000 per month.

70k @ 7% with repayments of $2,200 = less than 3 years.

So after 3 years the guarantee is gone and repayments reduce to the $2800 on the 80% loan.

Based on your income and your mum having investment properties the deal should be a walk in the park.

You can also revalue the purchase property in a couple of years - if it has increased in value you can increased your loan to pay out the guaranteed split.

85% no LMI will only raise you an additional 30k on a 600k purchase and you have said you are 60-70k short.

Other option is to pay LMI and go to 90%...

 

[Rolf Latham]

Hi SLL

WBC is one that will do 85 % no LMI loans at ok rates.

best to seek the services of an independent broker that works with a variety of lenders and have a chat with them as ot the other options

ta
rolf

 

[dammit]

I thought these guarantor loans just guarantee the % above the LVR that is needed and not guarantee the full loan, at least thats what I read from the below (taken from one of these products/websites):

Property guarantor (often referred to as a gift of equity)
This is where a person (called a ‘guarantor’) gives additional security, such as their own property, and they are not the borrower. We will accept guarantees where the guarantor is registered as a proprietor on the property being offered as security, and when they will be obtaining no benefit from the loan. We generally require that the additional property secures no more than 25% of the debt. Over time the overall debt should reduce through regular loan repayments and the additional security property may no longer be required. At this time a request could be lodged to release the additional property as security.

 

[Rolf Latham]

I thought these guarantor loans just guarantee the % above the LVR that is needed and not guarantee the full loan, at least thats what I read from the below (taken from one of these products/websites):

Property guarantor (often referred to as a gift of equity)
This is where a person (called a ‘guarantor’) gives additional security, such as their own property, and they are not the borrower. We will accept guarantees where the guarantor is registered as a proprietor on the property being offered as security, and when they will be obtaining no benefit from the loan. We generally require that the additional property secures no more than 25% of the debt. Over time the overall debt should reduce through regular loan repayments and the additional security property may no longer be required. At this time a request could be lodged to release the additional property as security.

Hi Sm

there is no "standard"

One would note well the advice of Dazz that often posts here on issues of contracts.

Read the thing ...........AND understand it

Its the second bit where most of us struggle, perhaps because we dont have the techo speak, or more likely we dont relate to the impact of some of the contact in the likley case it MAY happen. Perhaps that relates back to the "it wont happen to me" syndrome we ALL have

ta
rolf

 

[dan c]

It is not a limited guarantee that is the answer. When you look at the major 4 the guarantees will almost always reflect the full amount of the loan. Not negotiable.

To get around this you need two loans.

• One at 80% LVR with no guarantee (purchase)
• The second for the balance (secured against mums house) with a guarantee

So your are limiting your guarantee by splitting loans. Not by getting an actual "limited guarantee".


.

CBA do this as standard. One loan at 80% secured by new PPOR only, balance secured by new PPOR and Mum's place.

They don't ask for mum to guarantee the full loan, I doubt any of the others do, either.

 

[HLE]

You can calculate the size of the limited guarantee and your eligibility for a loan using this guarantor loan calculator.

There are a lot of tricky policies that can catch you out with this type of loan:

• Some lenders do not accept guarantees secured by a pensioners property (makes sense doesn't it!)
• Some lenders do not technically require savings however their credit score will decline your loan if you don't have much in the way of funds available.
• Some lenders require evidence that the guarantors can afford to repay the guarantee from their current income if required.
• Investment properties are preferred as security for the guarantee, although not essential.
• Most lenders will only accept a guarantee from your parents, other family members are rarely accepted.

Hope that helps, good luck.

 

[Bradsdad]

CBA do this as standard. One loan at 80% secured by new PPOR only, balance secured by new PPOR and Mum's place.

They don't ask for mum to guarantee the full loan, I doubt any of the others do, either.

I've done a couple through St George and they are both limited.

 

[The Sniffer]

I've done a couple through St George and they are both limited.

An actual limited guarantee (less than the loan) or limited by splitting the loan?

I would never use a limited guarantee for this as it creates additional risk to the guarantor. A trap for the unwise customer and mortgage broker.

Why... here is a scenario for a purchase of 300k

Option 1 - Two loans

240k - No guarantee (80% lend - purchase only)
60k - Guaranteed loan (this loan should be crossed - both securities)

With this option you don’t need an actual limited guarantee - the guarantee applies to only the 60k loan anyway. By doing this when you pay off the 60k loan; the guarantee is released...

Never do this without crossing the 60k loan. If mums property is the sole security and the 60k goes in to default. Mums property will be sold.

In courts the banks will be forced to at least “try” to recover from the borrower property before the guarantors therefore by crossing you are putting the purchase as “primary security” and the guarantors property as “secondary security”. As the purchase increases in value - the guarantors risk starts to reduce (only if crossed).

This is one of the few scenarios where crossing protects the 'guarantor' not the bank.

Option 2 - one loan with an actual limited guarantee

Single loan of 300k
Guarantee limited to 60k

BEWARE - The guarantee remains in force until the full 300k is cleared. The only way to remove the limited guarantee is to clear the loan in full or re-finance.

The guarantor is ultimately tied in for the entire term of the entire debt. Albeit secondary security.

If your bank or brokers offers you the second scenario - ditch them!
Even worst is option 1 without crossing the 60k -

never make the guarantor the sole security for any part of the debt.


Snif