Is having a mortgage on the guarantor’s property an issue?

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Reece
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Joined: Mon Apr 22, 2019 4:31 pm

Is having a mortgage on the guarantor’s property an issue?

Postby Reece » Mon Apr 22, 2019 4:32 pm

Hi, my parents are willing to be guarantors for my first home purchase. They have a $240,000 mortgage on an investment property they own which was valued at $450,000 back in 2018. Is having a mortgage on the guarantor’s property an issue?

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Otto Dargan
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Re: Is having a mortgage on the guarantor’s property an issue?

Postby Otto Dargan » Mon Apr 22, 2019 5:34 pm

Hello Reece. Welcome to the forums.

A mortgage on the guarantor's property is not necessarily an issue provided they have enough equity in the property to cover 20% of the property value you’re purchasing. The guarantor either needs to own the property outright or owe less than 80% of the property value on their mortgage.

There’s no hard and fast rule with this, just be aware that the less equity you have to work with the harder it will be to borrow 100% of the property plus costs, avoid having to pay a deposit and avoid genuine savings.

When your guarantor already has a mortgage on their property then your lender will take a second mortgage behind their loan. Keep in mind that not all lenders accept this kind of structure.

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

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

Reece
Posts: 3
Joined: Mon Apr 22, 2019 4:31 pm

Re: Is having a mortgage on the guarantor’s property an issue?

Postby Reece » Mon Apr 22, 2019 5:57 pm

Great! My parents want to have the option to divest their investment property in a few years. So, when and how can I release their property from the guarantee?

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Otto Dargan
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Location: Sydney, Australia
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Re: Is having a mortgage on the guarantor’s property an issue?

Postby Otto Dargan » Mon Apr 22, 2019 7:37 pm

Hi Reece,

If you wish to remove a guarantor's guarantee down the line, you’ll have to apply for a loan guarantor release otherwise it will stay in place for the life of the loan. The ideal time to remove the guarantee is when you owe less than 80% of the value of the property.

Some lenders will allow you to remove the guarantee once your Loan to Value Ratio (LVR) is at 90%. However, you’ll have to pay LMI.

It may be ideal for you to specifically ask for a home loan product with unlimited extra repayments feature to be able to pay off a portion of your mortgage to 80% sooner so as to be able to release your guarantor’s property.

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

Reece
Posts: 3
Joined: Mon Apr 22, 2019 4:31 pm

Re: Is having a mortgage on the guarantor’s property an issue?

Postby Reece » Tue Apr 23, 2019 12:04 pm

I understand what a limited guarantee is but I’m not sure as to how to calculate it. Say I’m purchasing a $420,000 house and borrowing 100%, what’s the size of the limited guarantee?

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Otto Dargan
Mortgage Specialist
Posts: 7535
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Is having a mortgage on the guarantor’s property an issue?

Postby Otto Dargan » Tue Apr 23, 2019 2:36 pm

Hi Reece,

For the majority of guarantor loans, we ask the lender to limit the guarantee secured on the guarantor’s property. That way your guarantors are not liable for the entire amount of the loan.

With the figures you’ve provided the size of the limited guarantee will be $105,000 secured on your parent’s property.
You can use our guarantor loan calculator to work out the size of the limited guarantee as well as identify any potential issues with your application.

Despite having a guarantor, some lenders still require you to have saved 5% of the purchase price yourself as a genuine savings requirement.

Give us a call on 1300 889 743 or fill in our free assessment form to discuss your situation with one of our guarantor loan specialists.

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


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