You know when you make a deal with a friend, that if the two of you aren’t married by the time you’re 40 you’ll marry each other? Or when you make sure your car has airbags? It’s a back-up plan. A failsafe. It’s nice to have, but you really hope you never have to use it.
That is a guarantor loan, or what we call an InterFamily Loan.
Usually an immediate family member or significant other, a guarantor might be the extra layer of protection the banks need to get you over the approval line. Unlike a co-borrower, the responsibility of the loan repayments rests with the borrower, with a guarantor allowing the equity of their own property to act as collateral should you no longer be able meet the terms of your loan. The loan is yours, but the bank has the failsafe – knowing they have another way to cover what is owed should things not go according to plan. A backup plan for the bank.
So, is whats good for the bank good for you?
A guarantor loan is a great way of getting around tricky issues like not having a full deposit. If you can prove you have the means to make the repayments but haven’t been able to save a lump sum, an InterFamily Loan could be what you need to borrow the full purchase price. In addition to this, one of the best things about a InterFamily Loan is that, usually for a small fee, the guarantor can be released from the contract before the loan is paid back in its entirety. Once you have built up the equity in your own property, the banks no longer need their back up plan and can free the guarantor from any obligations. You’ll still have to make the repayments of course, but all going well you have proven you have the ability to do so.
An InterFamily Loan can potentially save you tens of Thousands of dollars depending on your purchase price and level of involvement by your guarantor. When borrowing more than 80% of the purchase price a lender will usually insist on mortgage insurance. An InterFamily Loan means you’re not required to have this insurance. So more money in your pocket!
There are a few things to keep in mind when seeking a guarantor, for example it may affect the guarantors ability to further borrow, and in some cases can mean legal action is taken against them should you renege on your agreement. For these reasons, a major bank will not usually accept an application from a guarantor until that person has sought independent legal or financial advice. Like when your mates look through your dates Instagram account. Sometimes you just need another set of eyes on the job.
Entourage Finance have arranged countless guarantor loans and through this experience have it down to a fine art. Are you struggling to piece together that dreaded deposit? Do you have a family member that can help you get your foot in the property market? Are you ready to get serious and start creating a lifetime of wealth for yourself? If you have answered yes to any of these questions then a call too Entourage Finance is a must!