Use A Term Deposit As A Home Loan Guarantee

What Is A Term Deposit Guarantor Home Loan?

A term deposit guarantor home loan lets a family member help you buy a property by using cash as security instead of their home.

The guarantor places funds into a term deposit with the same lender, and the bank holds that money as security for the loan. This can reduce the deposit you need and, in some cases, allow you to borrow up to 100% of the property value, sometimes including some upfront costs.

If you default on the loan, the lender can use the guarantor’s funds to recover any losses.

This strategy is less common than traditional guarantor loans and is only accepted by a limited number of lenders in Australia.

How Does A Term Deposit Guarantee Work?

The process is relatively straightforward:

• The borrower applies for a home loan with a lender that accepts term deposit guarantees.
• The guarantor deposits an agreed amount into a term deposit with that lender.
• The lender holds the term deposit as security for part of the loan.
• The term deposit must remain with that lender and cannot usually be accessed.
• The bank rolls the term deposit over at the end of each term.
• The guarantee stays in place until the lender is comfortable releasing it (e.g. lower LVR).

How Much Cash Is Required For A Term Deposit Guarantee?

There’s no fixed number, but a good rule of thumb is: the guarantor needs to cover the gap above 80% of the property value.

So if you’re buying with little or no deposit, the lender wants enough cash to reduce their risk back to a safer level.

Example:

In this case, the guarantor would typically need around $100k, and potentially more if you’re also borrowing costs like stamp duty.

Term Deposit vs Property Guarantor

What Are The Benefits Of A Term Deposit Guarantee?

The major benefits of a term deposit guarantee include:

• You can borrow 100% of the property value.
• The liability of the guarantor is limited because, unlike a security guarantee, the guarantor’s assets aren’t exposed to risk.
• Since the property isn’t part of the guarantee, the guarantor is free to do as they please with their property.
• Applying for a term deposit can be as simple as applying for a standard savings account in a bank.
• The term deposit stays in the guarantor’s name and the funds are accessible as soon as the guarantor is released.

Apply For A Term Deposit Guarantor Loan

Speak with one of our mortgage brokers to see if a term deposit guarantee is right for you.

We’ll assess your situation, confirm whether your parents can use a term deposit as security, and walk you through the lenders and options available. If it’s a good fit, we can guide you through the process from start to finish.

Call us on 1300 889 743 or complete our freeonline assessment form to get started.