Guarantor Loans: A Guide for Parents Helping Their Children Buy
Thinking of helping your child buy their first home? Here is what guarantor loans involve and the risks to consider.
Raj Bhangu
Principal Mortgage Broker
Key Takeaways
- 1Guarantor loans: parents use property equity as security to help children buy with smaller deposit
- 2Risks for parents: liable if child defaults, affects your borrowing capacity, property value drops extend liability
- 3Guarantee typically released when LVR drops below 80% - usually 2-5 years
Many parents want to help their children enter the property market. A guarantor loan can make this possible, but understand what you're committing to.
What Is a Guarantor Loan?
Parents use the equity in their property as additional security for their child's home loan. This can help avoid LMI or purchase with a smaller deposit.
Risks for Parents
- If your child defaults, the bank can require you to pay
- The guarantee affects your borrowing capacity
- If property values fall, you may be liable longer
Releasing the Guarantee
Typically released when the loan-to-value ratio drops below 80% through repayments and property growth, usually 2-5 years.
Considering a guarantor loan? Let's discuss the structure that best protects everyone involved.
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Raj Bhangu
Principal Mortgage Broker
Expert mortgage broker helping Australians achieve their property dreams with personalized home loan solutions.
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As a mortgage broker, iSmart Finance receives commissions from lenders when we successfully arrange a home loan. This does not affect the interest rate or fees you pay. Our service is free for you, and we're committed to finding the best loan for your needs.
About iSmart Finance
iSmart Finance Group ACN 608 986 554 is Credit Representative 481761 of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237). We are members of the Finance Brokers Association of Australia (FBAA) and comply with the National Consumer Credit Protection Act 2009.
Our content is based on industry expertise, regulatory guidelines from ASIC and APRA, and data from the Reserve Bank of Australia. All information is current as of the publication date and subject to change.
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