Family Guarantee: What Is It and How First Home Buyers Can Use It

by | Sep 15, 2020

Family guarantee or guarantor home loan is a kind of agreement between the borrower and the lender that enables the borrower to get a home loan using the equity in his family’s home. It serves as a security for part or for your entire mortgage.

Family could be your parents, including parents-in-law and step-parents; siblings; and children. But what is Home Equity?


What is Home Equity?

Home equity is the portion of the home that’s already been paid off. In other words, it is the appraised market value of your home minus the outstanding balance of the loan. Hence, Home Equity increases over time as mortgage balances are paid down.

Home Equity can be used to purchase another property, renovate, refinance, and take out a line of credit. But Family Guarantee can only be used by first home buyers and property investors to purchase a new property, purchase an established property, and build a new home. So why use Family Guarantee?


Advantages of Family Guarantee

If you’re struggling to set aside enough money for deposit on your first home or investment property, then using Family Guarantee may be the answer.

It can:

  • Help first home buyers quickly buy a property
  • Reduce or eliminate Lenders Mortgage Insurance
  • Reduce Loan-to-Value Ratio (LVR)

First home buyers qualified to receive government concessions can still use a Family Guarantee. The grant will not be affected by the provision of a Family Guarantee.


How Does Family Guarantee Work? 

If you’re a first home buyer looking to use your mum and dad’s home to get your own, you can use the equity from their home to guarantee part of or your entire loan.

Your parents do not have to issue cash either to you or the lender, but they can choose the amount to commit as a security for your loan.

Your parents, or the guarantor, can also request to be released from the Parental Guarantee agreement when the required LVR is reached.

It is important to note that the family member or the guarantor has a responsibility in the home loan of the borrower. This means that whatever amount the guarantor chooses to guarantee a home loan with should be paid in case the borrower defaults.

There are certainly risks for the guarantor but Family Guarantee is an excellent way for parents to help their first home buyer children buy their first homes without the need for cash.

Minimise the risks and contact a professional to help you use Home Equity safely. Contact Chan & Naylor Finance. We’d be happy to help.


General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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