What is a term deposit guarantee?
A term deposit guarantee, or cash guarantee, is an unusual type of guarantor loan where the guarantor provides cash instead of their property as security for the home loan:
- Borrow up to 100% of the property value plus the costs of completing the purchase (depending on the deposit amount).
- This amount is used as security in the event that your default on your home loan.
- The funds will need to be deposited with the bank that you are using for your home loan.
- The bank will hold the term deposit and roll it over (start a new fixed term) until the guarantee is released.
Get in touch with one of our mortgage brokers and we can let you know if you qualify.
Call 1300 889 743 or complete our online assessment form today.
How does a term deposit guarantee work?
The guarantors put their funds in the bank that the borrowers are using for their term deposit.
The bank will hold the term deposit. They will keep rolling it over until the guarantee is removed.
There are competitive offers for 2-year term deposit guarantee loan, but it rolls off onto the regular customer rate after two years.
Can the guarantor withdraw their funds?
As a general rule, the funds from a term deposit guarantee cannot be withdrawn until the guarantee is legally released.
Once the guarantee has been released, the guarantor can withdraw their funds from the account or keep the account open with that bank.
Who should apply?
This type of loan is an alternative for guarantors that don’t want to put their property up as security for a loan or don’t have enough equit to do so.
It’s more suitable for guarantors that are financially well-off and have sufficient money that can be used as a term deposit.
It’s essential that your Mum and Dad are in a good financial situation before they decide to guarantee your mortgage.
Why should I use a term deposit guarantee?
Generally, people want to avoid exposing their assets to risk.
A few lenders now accept cash rather than property as security to tackle this problem.
The guarantor property remains secured from creditors even if the borrower is unable to make their loan repayments.
What are some other 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.
Term deposit FAQs
Will I earn any interest?
Yes, the bank will pay you regular interest from the funds you have in your term deposit!
The only downside to this is that you can’t change banks.
This means that you’ll have to accept whatever interest rate is offered by that bank when your term deposit rolls over.
Do I have to provide a deposit?
The guarantor is usually required to provide up to 25% of the purchase price as a deposit.
Normally, this is enough to protect the lender from any risks that may be caused by the borrower failing to make the repayments.
For example, to buy a property worth $500,000, the guarantor needs to have a $125,000.
It’s recommended that you analyse your financial situation first before you act as a guarantor for your child’s home loan.
If the loan has an existing security, can the guarantor sell it?
There are cases where there is an existing security guarantee in place and the guarantor wants to sell.
In this situation, the guarantee can be moved from the guarantor’s property into a term deposit acquired from the proceeds of the sale.
This situation isn’t accepted by most lenders but some lenders may approve this if you can clearly justify your situation.
Discover if you qualify
Call us on 1300 889 743 or complete our free online assessment form to speak with one of our mortgage brokers.
We can let you know if your parents can use a term deposit as security for home loan.