The guarantor uses equity from their home to guarantee part of their child’s loan.
The guarantor is not required to give any cash to the borrower for their deposit. The guarantee is limited and allows the guarantor to choose the amount to commit as security for their child’s loan.
The guarantor can request to be released when the required loan to value ratio is achieved before the loan is repaid.
It’s critical that the borrower has the budget to afford the loan as the guarantee does not reduce or assist with home loan repayments.
It is also important for the parent to understand that in acting as a guarantor, a portion of their property is being used as security for the loan taken out by the borrower. As a result there is a commitment to pay back the amount of the guarantee in the case the borrower defaults.
David is planning to purchase a $500,000 property with a $25,000 deposit (LVR of 95%), which means Lenders Mortgage Insurance (LMI) would be payable due to the high LVR for this loan.
If David’s parents have equity in their home, they could provide a Parental Guarantee of say $75,000 as additional security on the loan, reducing David’s LVR to 80%.
This scenario would mean David can avoid paying Lenders Mortgage Insurance, saving him up to $16,500.
|Benefits for the Borrower||Benefits for the Guarantor|
Credit criteria, fees, charges, T&C's apply. The guarantor should consider the risks associated with Parental Guarantee, primarily that if the borrower defaults on their loan, the guarantor is liable to pay up to the maximum of the portion of security they have put forward as a guarantee. Westpac advises guarantors obtain independent legal advice.
1. Credit criteria apply to the assessment of the adequacy of any proposed guarantee limit.
2. Equity Access and owner-builder applications are excluded. Other exclusions may apply.
The information on our website is prepared without knowing your personal financial circumstances. Before you act on this general information, please consider if it's right for you. If you need help, call 131 900.