Family Security Guarantee

What is a Family Security Guarantee?

If you’re finding it tricky to reach a deposit of 20% or higher on your home loan, that’s where a Family Security Guarantee comes in.

 

It allows a family member to act as guarantor to secure your deposit, so you have a bit more borrowing power. This can reduce your Loan to Value Ratio (LVR) to under 80%, which means you can avoid paying Lender’s Mortgage Insurance (LMI) on top of your deposit.

 

That family member can choose cash (like tucked-away savings or term deposit funds) or equity from their home to use as security, and they won’t need to give any funds directly to the borrower. 

Here’s an example of how the guarantee works

If you wanted to borrow $270,000 (to cover the loan amount, and other costs, but not LMI) for a property valued at $300,000.
 

Loan Amount ÷ Property Value = LVR
$270,000 ÷ $300,000 x 100 = 90%

With an LVR of 90%, LMI is applicable, which is an added cost. However, if you were to add a Family Security Guarantee of $40,000 as additional security, the LVR on your loan reduces.
 

Loan Amount ÷ (Property value + Family Security Guarantee amount) = LVR
$270,000 ÷ ($300,000 + $40,000) x 100 = 79%

With a new LVR of 79%, LMI would no longer be required, which could be a significant saving.

For the guarantor

If you choose to use cash instead of your home’s equity, that amount can be put in a Term Deposit as a guarantee for your family member, to help them enter the market sooner.

 

Know the detail

The term deposit rate applicable is the standard advertised rate. Interest will be paid monthly or annually on deposits from $5,000. The maximum deposit amount is 20% of the guaranteed loan value. It’s available to personal customers only, and will be held as a Family Security Guarantee against a home loan. 

 

After the initial term investment, the Term Deposit will continue to roll over until the required Loan to Value Ratio (LVR) is achieved, and the guarantee can be released. You will be required to seek independent legal advice before offering to guarantee a loan. Please note the Term Deposit must be opened in branch or via Customer Care. Conditions, fees and charges apply. 

You’ll also enjoy:

• More options – As the guarantee is limited, you can choose the amount you would like to commit, up to 50% of the loan value.
• More flexibility – You can be released from the guarantee as soon as the LVR drops below 80%. No need to wait until the loan’s fully repaid.

Know the risks

If you’re thinking about becoming a Guarantor in the Family Security Guarantee, there are a few things you should be aware of first:

• It’s a big decision to make, so ensure you’re confident with the borrower’s financial situation (and yours) to handle it.
• Keep in mind, a single guarantee is able to represent no more than 50% of the guarantor’s security.
• You’ll be liable for the amount you guarantee. That means you’re promising to pay Westpac that amount if the borrower can’t repay their loan and defaults. If you choose to use a Term Deposit as security, the whole deposit amount could be used, depending on the portion the borrower cannot repay. If you choose to use your home’s equity as security and don’t have cash to pay Westpac upfront if asked, your house may be sold to cover it. 
• While acting as guarantor, your ability to borrow may be reduced.
• Make sure you read and understand the full Terms and Conditions of the guarantee, and ensure you seek the mandatory independent legal advice before making a decision and signing any documents.

 

For the borrower

With a Family Security Guarantee, you can enjoy:

• More borrowing power – Maximise the amount you can borrow; up to 100% of the purchase price, plus costs like Stamp Duty and Legal Fees.
• More to save – A guarantee can help you reduce or avoid Lender’s Mortgage Insurance, saving you money when you need it most.
• More choice – You may be able to enter the market sooner, with extra flexibility to choose the property that’s right for you.
   

Before you get started, ask yourself:

Are you eligible for the Family Security Guarantee?

To be eligible, you must be looking to purchase or refinance a new home for yourself, or an investment property.

 

Have you thought about home loans yet?

The Family Security Guarantee is available on a range of our loans, for purchase or refinance of owner occupier or investment properties. Note that, for investment properties, the borrower must not have ownership of any other properties at the time of application, and for owner occupied properties, a maximum of one other property may be owned which does not have sufficient equity to provide a security. Please speak to your lender for more information about your eligibility. Line of Credit and Bridging Loan products are not eligible under the Family Security Guarantee, and it cannot be used for the purposes of debt consolidation, owner builder construction, cash out, or adding of a security guarantee to an existing loan.

 

Do you have a family member who might be interested in helping you purchase your property? 

They may be a parent, legal guardian, sibling, or your child aged over 18. It’s a big decision to make, so check they understand the benefits and risks, and ensure they’re confident about their financial situation (and yours) to handle it. Keep in mind, a single guarantee is able to represent no more than 50% of the guarantor’s security.

 

Are you on top of any expenses?

Make sure you’re aware of any extra buying costs, like Stamp Duty and legal fees. It’s critical that you have the budget to afford the loan, as the guarantee does not reduce or assist with home loan repayments.

Frequently asked questions

If you’re thinking of applying

Find out more information

Sharing the guide documents linked below with a willing family member could be a good way to start a conversation about guarantees, so you can both learn more about the benefits and risks.

• Check out this guide (PDF 258KB) for detailed explanations and examples.
• For a rundown of all the nitty-gritty, here’s an Information Statement for family members (PDF 68KB)
• Check out this video on guarantors:

Get in touch with a specialist

Chat to one of our Home Lending Specialists or your lender to work out if the Family Security Guarantee is right for you.