Will I pay a higher interest rate with a guarantor?

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Amaru
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Joined: Thu Apr 11, 2019 7:22 pm

Will I pay a higher interest rate with a guarantor?

Postby Amaru » Thu Apr 11, 2019 7:24 pm

Hi, my wife and I have been perusing real estate listings of properties near Ballan, Vic and we think we’ve found a property that we’re really keen on. My parents have been encouraging me to settle near here, as they want to be close to their grandchildren. They’re eager to guarantee our mortgage. We currently rent an apartment unit in the city at $580/week. We’re tired of paying the rent and would rather use the rent money to pay off our mortgage, plus we could use the extra space, what with the children growing up. Our financial plan was to be debt free asap, and apart from a few credit cards, we’re almost there. I mention this because even though we can reasonably save more than 30% of our paychecks, most of it went towards paying off debts. We haven’t been able to save a large enough deposit to avoid LMI.

We can either proceed with a 5% deposit or wait a year to come up with a larger deposit (10%-15%), or we can go with a guarantor.
Which one do you suggest?
My concern with using a guarantor is that, since we won’t be putting down a deposit, we may have to pay a higher interest rate?

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Otto Dargan
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Re: Will I pay a higher interest rate with a guarantor?

Postby Otto Dargan » Thu Apr 11, 2019 8:01 pm

Hello Amaru. Welcome to the forums.

A guarantor home loan is the only true no deposit solution allowing you to borrow the full amount of the property value as well as the funds needed to complete the property purchase.

With a guarantor home loan:
  • You can borrow up to 100% - 105% of the property value (110% for debt consolidation and purchase).
  • You don’t need a deposit allowing you to buy now.
  • You save money by not paying Lenders Mortgage Insurance (LMI).
  • Discounted interest rates are available with some lenders.
  • You can consolidate minor debts such as credit cards and personal loans when you buy your home.
  • You can limit the size of the guarantee.

The interest rates are particularly competitive when it comes to applying with a guarantor securing your home loan. In fact, banks are currently fighting for more business as their home loan books have shrunk. At the moment, we have several lenders on our panel that are offering significantly reduced fixed rates but they are only available over the month of April.

With a low deposit or just the minimum 5% deposit, you may still qualify for a home loan. You may have limited lender choices as such the interest rate that you get may not be the best compared to a guarantor loan. The bigger the deposit you have, the more leverage we have when negotiating a better interest rate.

In addition to your 5% deposit, you’ll need extra funds to cover the associated costs of purchasing a property like stamp duty, LMI and other miscellaneous fees. Provided the guarantor’s property has enough equity, you can even borrow the cost of completing the purchase of the property with a guarantor.

We will need to do a full assessment and look at your situation thoroughly before deciding on a course of action.

Speak with one of our experienced mortgage brokers by giving us a call on 1300 889 743 or by filling in our free assessment form to find out if you qualify for a guarantor home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Amaru
Posts: 3
Joined: Thu Apr 11, 2019 7:22 pm

Re: Will I pay a higher interest rate with a guarantor?

Postby Amaru » Thu Apr 11, 2019 9:50 pm

Interesting. I was going through your website and came upon the genuine savings requirement. I just want to clarify whether or not you need genuine savings with a guarantor?

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Otto Dargan
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Re: Will I pay a higher interest rate with a guarantor?

Postby Otto Dargan » Thu Apr 11, 2019 10:21 pm

Hi Amaru,

Most lenders still require you to have 5% of the purchase price in genuine savings even if you’re using a guarantor. Genuine savings is essentially money you’ve saved up yourself.
There are certain exceptions such as using paid rent as genuine savings, with this method you’ll still require a deposit, however, it can come from a different source like a gifted deposit.

There are lenders who do not have a genuine savings requirement, while some lenders use their own internal credit scoring system. The key is to apply with the right lender.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Amaru
Posts: 3
Joined: Thu Apr 11, 2019 7:22 pm

Re: Will I pay a higher interest rate with a guarantor?

Postby Amaru » Fri Apr 12, 2019 11:40 am

So, there’s no true ‘no deposit solution’, is there? If I decide not to go with a guarantor, can I add the cost of LMI on the loan? What’s the maximum LVR I can borrow with the LMI capitalised?

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Otto Dargan
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Re: Will I pay a higher interest rate with a guarantor?

Postby Otto Dargan » Fri Apr 12, 2019 2:36 pm

Hi Amaru,

There are other no deposit home loans apart form guarantor home loans available if you know where to look:
  • Gifted deposit: A non-refundable 5% to 15% of the purchase price as a gift from your parents is accepted by some lenders.
  • Personal loan as a deposit: If you have a very high income, clear credit history, and less than $10,000 in existing debt, you can use a borrowed deposit.
  • Equity in another property: If you already own property with existing equity, you don’t need any savings at all.
  • Self-managed Superannuation Fund (SMSF): You can borrow up to 80% of the property price for an investment (not for owner occupiers) with an SMSF. As a minimum, you’d need over $150,000 in superannuation.

There are some lenders who will allow you to add the cost of LMI onto the home loan (capitalise). With a 5% deposit, you may be able to borrow up to 95% of the property value and add the cost of LMI on the loan with some of our lenders. Home loans that are more than 80% LVR are considered high risk and you’ll be paying thousands of dollars in LMI.
For example, when borrowing $475,000 for a $500,000 NSW property at 95% LVR, the LMI premiums can be anywhere between $14,450 and $16,198. You can avoid the cost of LMI altogether using a guarantor.

We specialise in low deposit home loans and guarantor home loans.

Give us a call on 1300 889 743 or fill in our free assessment form to discuss your situation and let us help you find the best solution.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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