Never heard of a guarantor home loan, not surprising, but with the continuing rise in property prices, many young home buyers are finding that this is the only way for them to get a foot on the property ladder.
Faced with high house prices and the rising cost of living, many would-be first-time buyers are finding homeownership well and truly out of reach. The difficulty is that while there are many young buyers who have the financial capability to service a loan, they simply can’t raise the sizable deposit typically needed to satisfy the banks.
While not every family is in a position to hand out cash for a child’s deposit, there are some other strategies that allow you to give your child the best start without putting financial strain on yourself. Being a guarantor is a great way to give your children the extra financial support needed to maximise their chances of meeting the requirements of their bank or other lender.
Guarantor home loan with equity
As a guarantor, you effectively allow the equity in your property to be used as security for your child’s loan. With you as their guarantor, your child may be able to borrow the entire purchase price and in some cases, any associated purchase expenses may be covered as well.
Best of all, this strategy does not require you to dip into any of your own savings or liquidate any assets, reducing the risks and financial strain for yourself. As the size of the guarantor home loan decreases and the value of the property grows, you will be able to relinquish your support, allowing your child to take full responsibility for their home and mortgage.
While becoming a guarantor can be a great way to help your children break into the property market, there are some associated risks you need to be aware of. While you do not have to put up any initial capital, you may be held responsible for the loan if your child defaults. It is important to discuss these requirements with your broker to make sure you are fully aware of your responsibilities.
Before becoming a guarantor, it would pay to look closely at your child’s current financial status and assess their ability to make the required repayments. It is also critical that your child is aware of the risks you have undertaken by becoming their guarantor. Your mortgage broker will be able to give you all the information you need about a family pledge guarantor home loan, to help you make an educated decision and make sure your decision is not only the best one for your child but also is the right one for you.