A Family Security Guarantee allows an immediate family member to act as your loan guarantor. The Guarantor can vary but is normally restricted to parents and siblings with some extended family permitted by some lenders. The loan guarantor secures a portion of the loan, so borrowers potentially have more purchasing power because they are not limited by their deposit. This can have a flow on where it reduces loan to value ratio (LVR) to under 80%, which means there is no need for Lenders Mortgage Insurance (LMI) on top of deposit, saving purchasers significant money.

Lets look at a typical scenario where we have a young couple looking to buy a property for $1,000,000. Lenders mortgage insurance which covers the lenders risk not the borrowers is very expensive and is payable by the borrower. It is required when borrowings exceed 80% of the purchase price or valuation of a property. For our example the clients have been lucky enough to have family member agree to act as guarantors. The lender will require a mortgage over the Guarantors property. In example below we have assumed clients have sufficient cash to pay for the transfer/ stamp duty & legal fees.

The numbers with guarantors look like:-

Purchase price:- $1,000,000

Loan at 80% $ 800,000

Guaranteed loan$ 200,000

Total Borrowings $1,000,000

In every instance the clients are responsible for the payments of the total borrowings i.e. both loans. They need to be able to show ability to meet repayments on the $1,000,000 in total.

In many instances first home buyers will have a mix of cash savings and guaranteed loans.

In most cases the family members who are offering guarantee will be signing a guarantee limited to $200,000 however lenders policies vary on this.