What are the new changes to guarantor home loans under the new banking code?

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Jarvis
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Joined: Mon Jul 01, 2019 5:30 pm

What are the new changes to guarantor home loans under the new banking code?

Postby Jarvis » Mon Jul 01, 2019 5:32 pm

Hi, our daughter has asked us to be the guarantor for her home loan however, we’re not quite sure what it entails. We own our home outright, in fact, it’s the same house she grew up in. I have a couple of concerns and questions.
First, What can I do to protect myself? Are there any protections for guarantors like insurance I can take out?
Secondly, What are the new changes to guarantor home loans under the new banking code?

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Otto Dargan
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Re: What are the new changes to guarantor home loans under the new banking code?

Postby Otto Dargan » Mon Jul 01, 2019 6:16 pm

Hello Jarvis. Welcome to the forums.

Deciding to be a guarantor for anyone is a big decision and not to be taken lightly as if the guaranteed borrower cannot meet his repayments, the lender will come after the guarantor’s security for the guaranteed amount. It’s always recommended to seek legal advice when reviewing the guarantee documents before signing it.
That being said, you’re only guaranteeing up to 20% of the loan amount and not the entire home loan amount in what’s known as a limited guarantee guarantor loan. You can use our guarantor loan calculator to work out what the limited guarantee will be for you.

The Banking Code of Practice (the Code) sets out the standards of practice and service in the Australian banking industry for individual and small business customers and their guarantors.

Under the 2019 Banking Code of Practice (the Code) effective 1 July, guarantors must:

  • Be given a minimum of 3 days to review the guarantee documents.
  • Be encouraged to seek legal advice before signing as is currently the case.
  • Have a cooling-off period after signing the guarantor agreement.
  • Be notified if the guaranteed borrower’s financial situation changes and he/she cannot meet their repayments.
  • It is only after the bank has exhausted all avenue of recouping their investment that they can start action against the guarantor.

Although it is not a requirement for a guarantor home loan, to give yourself protection in the event of default, you may want to consider getting life, total and permanent disability, and/or income protection insurance for the guaranteed borrower. Seek advice from a qualified financial adviser to ensure you choose the right insurance product.

We specialise in guarantor home loans.

Give us a call on 1300 889 743 or fill in our free assessment form to discuss your situation.

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

Jarvis
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Joined: Mon Jul 01, 2019 5:30 pm

Re: What are the new changes to guarantor home loans under the new banking code?

Postby Jarvis » Mon Jul 01, 2019 6:58 pm

To be fair, they are financially responsible and I just wanted to be sure. Are there any other changes to home loan in general under the new banking code?

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Otto Dargan
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Location: Sydney, Australia
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Re: What are the new changes to guarantor home loans under the new banking code?

Postby Otto Dargan » Mon Jul 01, 2019 7:20 pm

Hi Jarvis,

There are several other new guidelines under the 2019 banking code of practice which comes into effect 1 July 2019 which the banks (ADI) must adhere to, the most relevant key points for consumers are:

  • Fees and commission on lenders mortgage insurance (LMI) will be abolished. A fact sheet on the key policy features will be provided.
  • A delay in offering add-on insurance for credit cards and personal loans.
  • Reminders when an introductory credit card offer is about to end.
  • Measures to assess a customer’s ability to repay their entire credit card limit within three years.
  • Credit card assessment rate for home loans changes from 3% to 3.8% in-line with regulatory expectations.
  • Proactive contact with customers deemed at risk of financial difficulty.
  • A commitment to take extra care with vulnerable customers and to train staff to help.
  • Active promotion of affordable banking products.
  • Assist people on low incomes to pick the right accounts for them including low or no fee accounts for pensioners and concession.
  • Give customers lists of direct debits and recurring payments making it easier to switch.


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

Jarvis
Posts: 3
Joined: Mon Jul 01, 2019 5:30 pm

Re: What are the new changes to guarantor home loans under the new banking code?

Postby Jarvis » Mon Jul 01, 2019 7:58 pm

That’s great but what if we want to sell our current house when we retire seeing in five to six years? Can you sell the house if it’s under guarantee?

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Otto Dargan
Mortgage Specialist
Posts: 7528
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: What are the new changes to guarantor home loans under the new banking code?

Postby Otto Dargan » Mon Jul 01, 2019 9:56 pm

Hi Jarvis,

Yes, you can apply to remove the guarantee from a guarantor home loan once the loan to value ratio (LVR) decreases to a certain level. Ideally, you should wait until the LVR on your daughters home (guaranteed property) is less than 80% so as not to pay lenders mortgage insurance (LMI) fees. You can, however, apply to have the guarantee removed at 90% LVR but that would again attract LMI.


Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a home loan.

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


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