Saving for a home deposit can be slow going. One way to speed things up and help get you into your own home faster is with a Family Guarantee – it’s a helping hand from a family member, who agrees to be your home loan guarantor.
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The basics of guarantor home loans
How does a Family Guarantee work?
A Family Guarantee (also known as a Family Home Guarantee or Family Support Guarantee) is when a family member agrees to secure your (the borrower's) home loan. This means if you don't pay your debt, it falls to the family member to pay it. The family member guaranteeing payment of the home loan is known as a 'guarantor'.
Our Family Guarantee is structured as two separate loans:
- One loan for the majority of the property value (usually 80%) – this is secured solely by the home you buy or own
- One smaller loan for the remainder of the property value (usually 20%). This is secured by the home you buy or own and by a portion of the equity in your guarantor's property.
To release the Family Guarantee
Once you’ve paid off the second smaller loan, you can apply to remove the guarantee. This means your guarantor will only be liable for as long as it takes you to pay off the smaller loan. You can even make extra repayments to help release the guarantor's property sooner. Just keep in mind that early loan repayment fees may apply on some home loans.
Why get a Family Guarantee?
- You can spend less time saving for a deposit or even not need one at all, so you can get on the property ladder sooner
- You can borrow up to 100% of the property’s purchase price or value plus applicable fees without having to pay Lenders' Mortgage Insurance (LMI) – which you would normally have to factor into your budget if you were borrowing more than 80% of the property’s value without a guarantor.
Here's an example:
Let’s say you’ve got a $50,000 deposit and you’d like to buy a house that’s worth $500,000. This would mean that your deposit is 10% of the property’s purchase price, and you’d have to pay LMI on the remaining 10% of required security. Instead of proceeding with your 10% deposit alone, a guarantor could offer $50,000 (the remaining 10%) of their home equity, making up 20% of your home loan security – saving you that LMI. Similarly, if you don't have a deposit at all, your guarantor could offer $100,000 of their home loan equity to be used as security on your loan.
Criteria for a Family Guarantee
You can get a Family Guarantee if:
- You are able to service the total repayment amount, across all loans.
- Your guarantor is an immediate adult relative (mum, dad, brother, sister, grandparent, spouse, de facto partner or child).
- Your guarantor's home loan is with us. If it's with another lender, they’ll need to move their loan to us.
Considering becoming a guarantor?
It’s important that you get independent financial and legal advice to understand what you're potentially signing up for. Remember, you'll be responsible for paying for the borrower's home loan should they not be able to make repayments.
Frequently asked questions
If you’re unable to make your repayments, your guarantor will be liable for the loan.
Any of our loans can be used as a guarantor loan – your Home Lending Specialist or broker can help you find one that best suits your situation and needs.
No, you’ll be able to borrow up to 100% of the property’s purchase price. Keep in mind – the more deposit you have, the less equity your guarantor would need to offer to provide security on your loan. Also, you'll have higher repayments and pay more interest over the life of the loan.
There’s a range of things that affect how much you could borrow (like your income, expenses, credit score and more). This will also need to be considered with your guarantor’s situation. Your Home Lending Specialist or broker will be able to help you figure out your borrowing capacity.
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The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. Also to the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL / Australian credit licence 234945, its related bodies corporate, employees and contractors accept no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article.