Are you concerned about your children struggling to secure a home loan? Fret not! There's a way you can provide valuable support as a guarantor. This guide breaks down the process and outlines the benefits, risks, and considerations of becoming a guarantor for property loans in Perth, Western Australia.
Why Consider Being a Guarantor?
If your children or family members face challenges securing a home loan, and you have sufficient equity in your property, you can leverage your asset as additional security. While the borrower's property remains the primary security, your property is also mortgaged to support the guarantee you're providing.
Mitigating Financial Commitment
The idea of making a substantial financial commitment might seem daunting. However, as a guarantor, you have the flexibility to cover as little as 20 per cent of the loan. This ensures you protect your financial interests while offering crucial support to your relative.
Temporary Commitment
Contrary to misconceptions, being a guarantor doesn't mean a long-term commitment. Once the borrower accumulates enough equity and demonstrates the ability to manage the loan independently, you can request to be released as a guarantor.
Who Can Be a Guarantor?
Typically, guarantors are immediate family members, including parents, in-laws, step-parents, and, in some cases, siblings and grandparents. Some lenders may even consider extended family members and ex-spouses.
How Does a Guarantor Assist?
Prospective buyers may struggle to meet the full deposit or need to borrow additional funds for property-related expenses. If a buyer aims to borrow more than 80 per cent of the purchase price, they usually face Lenders Mortgage Insurance (LMI) costs. Being a guarantor can eliminate the need for LMI, resulting in substantial savings, sometimes totalling thousands of dollars. Additionally, it may enable the buyer to borrow the entire purchase price, along with extra funds for associated costs.
Understanding the Risks
While your relative may be reliable, unforeseen circumstances like unemployment or illness can impact their ability to repay the loan. As a guarantor, you may be legally responsible if the borrower defaults, potentially facing legal action. It's crucial to seek independent legal advice before becoming a guarantor.
Impact on Personal Borrowing
Being a guarantor can affect your ability to borrow for personal purposes. Considering these implications and assessing your financial situation before taking on this responsibility is essential.
Conclusion
Becoming a guarantor can be a powerful way to support your loved ones in their homeownership journey. To make an informed decision, consult our experts and ensure you understand the legal and financial implications. Your trusted partner in Perth real estate settlements. 🏡🔑💼
Disclaimer: Seek Professional Financial Advice
The information provided is general and not financial, investment, or legal advice. Consult a qualified financial professional before making decisions based on this content. We do not guarantee accuracy or endorse third-party links. Past performance is not indicative of future results. Your specific circumstances require personalised advice. Always consult a qualified and registered professional for your financial needs.
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