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It’s no secret that saving for a home deposit can be difficult. Whether you’re juggling the
cost of renting, further education or even just the rising cost of living, the dream of owning
a home can feel like a long shot – but there is something that could help you secure that
dream sooner.

A family security guarantee is commonly used by home buyers when they aren’t able to
secure a loan on their own.

What is a family security guarantee?

For borrowers who aren’t able to reach a deposit (as required by the lender) on their home
loan, a Family Security Guarantee may be a solution.

This allows a family member to act as a guarantor to secure your deposit, giving you greater
borrowing power. This can reduce your Loan to Value Ratio (LVR) to under 80%, removing
the need to pay Lender’s Mortgage Insurance (LMI) on top of your deposit.

That family member can choose to use equity from their home or cash (for example, savings
or term deposit funds) to use as security for your loan, however, they will not need to give
any funds directly to you or the lender.

What are the benefits of a Family Guarantee/Guarantor?

✔️ Borrowers can finance up to 100% of the purchase price, plus costs
✔️ Lender’s Mortgage Insurance and Low Deposit Premiums can be avoided
✔️ Wider range of loan products to choose from
✔️ Additional interest rate discounts available
✔️ You may be able to enter the market sooner than you would be able to otherwise
What does this kind of loan look like?

Here is a quick example of how a Family Guarantee can work:
Jane is looking to purchase a property valued at $500,000. To do this, she needs to borrow
$450,000 to cover the loan abouts and other costs (not including LMI).

Loan Amount ÷ Property Value = LVR
$450,000 ÷ $500,000 x 100 = 90%

With an LVR of 90%, Jane would need to pay LMI as an added cost, however, if she adds a
Family Security Guarantee of $70,000 as additional security, the LVR on the loan reduces

Loan Amount ÷ (Property Value + Security Guarantee amount) = LVR
$450,000 ÷ ($500,000 + $70,000) x 100 = 79%

With a new LVR of 79%, Jane no longer requires LMI, saving her a significant amount of
money on her property purchase.

The details:
– The value ($) of the guarantee can be limited to 20% of the purchase price, plus costs
(including stamp duty, legal fees etc).
– In most cases there are no servicing requirements from the Guarantor/s (this is not
an income guarantee)
– A second mortgage may be available if the guarantor’s current mortgage is with a
different lender

How long does the guarantee last?

You can remove the guarantee when:
– You haven’t missed any payments in the last 6 months
– Your loan is less than 80% of the property value (you can still remove the guarantee
if you owe more than this, however, you will need to pay LMI to achieve this)
Most guarantees last from 2-5 years, depending on property prices and your ability to pay
down your loan.

Want to see if this is suitable for you?

Get in touch with our team today to discuss your options. Send us an email or call us on (02)
9095 6888

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