106% home loan was a no deposit product that was once offered by specialist lenders from First Permanent Building Society.
For homebuyers, this was an opportunity to buy property without the need to have the usual 10% deposit for a mortgage.
Do 106% home loans still exist?
Unfortunately, this product no longer exists. They were withdrawn from the Australian mortgage industry after the Global Financial Crisis (GFC).
Instead you can take out a guarantor home loan.
How did they work?
Basically, 106% home loans were like guarantor loans but without the guarantor.
Lenders allow you to borrow the full price of the property. They also cover most of the costs associated with the mortgage including stamp duty, legal fees and mortgage insurance.
106% home loans were better suited for first home buyers and borrowers with little to no savings.
You can call us on 1300 889 743 or fill in our free online assessment form to find out what options are available for you.
What options do I have now?
The GFC saw many traditional no deposit loans, such as the 106% investment loan, withdrawn from the Australian property market.
Today, guarantor home loans are the only way you can borrow more than 100% LVR (Loan to Value Ratio) with no LMI (Lenders Mortgage Insurance). Although you can’t get 106% home loans, you can still borrow up to 105%, even 110% if you’re consolidating your debt.
What types of guarantees are acceptable?
Generally, lenders accept four types of guarantees for a guarantor mortgage. These include:
- Security guarantee: The guarantor can use real estate that they own as additional guarantee for your mortgage. In case the guarantor has another loan on their property, the bank can take a second mortgage as security. This type of guarantee is suited for first home buyers who don’t have a deposit.
- Security and income guarantee: This type of home loan is used by parent trying to help his/her children buy their first property. This is usually because the children are either students or have a low income. The lenders use the parent’s home as security while relying on their income to prove that the loan is affordable.
- Family guarantee: The guarantor is directly related to the borrower. Usually, lenders consider grandparents, siblings and other family members as guarantors on a case by case basis. They are often referred to as parental guarantee by lenders.
- Limited guarantee: Depending on wishes and requirements of the guarantor and lender, you can limit the size of the guarantee. Limited guarantee means that the lender will use the additional security to guarantee only part of the loan. This reduces potential liability secured on the guarantor’s property.
How does a guarantor loan work?
In a guarantor home loan, you require a potential guarantor to guarantee your loan.
A guarantor provides a guarantee, or security, for your home loan, which is usually secured on the guarantor’s property.
The aim of this strategy is for home buyers to enter the property market. The guarantee can be removed once you’ve paid off part of the loan or if the value of your property increases.
Who can be a guarantor?
Unlike 106% home loans, a guarantor is required to provide a guarantee on your home loan.
As a general rule, only parents or immediate family members are accepted as the guarantor by most lenders.
However, there are some lenders who will accept anyone, even your friends and workmates.
Why should I consider a guarantor loan?
In recent years, guarantor loans have become more popular among Australians. This is because:
- They cost less than your standard home loan.
- They allow you to buy even if you don’t have a deposit.
- Some lenders allow you to limit the size of the guarantee.
You can call us on 1300 889 743 or fill in our free online assessment form and speak with our mortgage brokers about your situation today.
106% Home Loans FAQs
Will banks consolidate my debt?
Some banks allow you to consolidate your debt as well as buy a property. However, only a handful will allow you to consolidate both your credit card and personal loans at the same time.
It’s important to note that you can only consolidate minor debts. In particular, your debts shouldn’t exceed 5% of the purchase price or else you won’t be able to roll them into a mortgage with any lender.
What are the risks of being a guarantor?
As a guarantor, you’ll be liable for your child’s home loan if they fail to meet their mortgage obligations. This means that the bank may try to sell your home immediately to cover any loss if your child defaults on the home loan.
In reality, the bank tries its best to solve the problem before making the decision to sell your home. Taking into account the time and expenses you require, selling a home can be a hassle.
Call us on 1300 889 743 or fill in our free online assessment form and speak with our mortgage brokers to get more information about being a guarantor.