Home Loan Rate – Australia

Saving a deposit for a new home can be quite stressful, especially if you are trying to save ten or twenty percent of the value of the property. These 5 essential tips should help bring you closer to owning your own home.

With a guarantor you may even qualify for a no deposit home loan! Read on to find out more.

Have as little debt as possible! Before applying for your loan, pay off your debts, or at least have some money left over after each monthly payment which you then can save each and every month.

Banks and lenders do not like their customers paying out large sums of money on other debts. They also make saving your deposit far more difficult to do.

Consolidating all your debts into one monthly payment is a great first step and it may also help you move away from those high interest repayments such as credit card debts. Next, prioritise your repayments over and above your other expenses, other than essentials such as water and electricity. You will pay them off faster and at the same time prove to lenders that you can manage your debt well.

Make a budget for all your expenses. Monthly expenses such as rent, food and utilities bills are a large drain on your finances. Make a budget and calculate exactly how much you must spend each month. Include any current debts such as credit card repayments as mentioned above. Once you have done this it will be far easier to keep track of your spending habits and keeping your living costs down.

Transfer your earnings automatically each month. Once you have taken the above steps you should find you have more money left over at the end of each month. A great way to save a set amount of money each month to have it transfer to a savings account just after you receive your pay.

This should be easy to work out after you have created your monthly budget. Many banks and lenders offer easy to use solutions here. It is also useful to have your savings account NOT connected to a debit or credit card. This way you cannot withdraw the money on a whim.

Remember to factor in Lenders Mortgage Insurance (LMI). Lmi guarantees the lender if you fall into difficulty and cannot service the loan. LMI is a cost not included in the deposit. Therefore for a mortgage where you borrow at least 80% of the property value, you need a 20% deposit and you may need to pay Lenders mortgage insurance. This can come to a few thousand dollars.

As an example; on a $100 000 loan you may pay $1000 insurance. A lender will normally loan you $99 000 for the mortgage and keep the rest . Keep this in mind when considering your deposit. When using a guarantor as security for your loan a lender may waive the requirement for LMI.

If your parents can act as guarantor you are eligible to apply for a no deposit home loan! Your parents can use the value of their property as a guarantee for your loan. Some lenders are willing to waive the requirement for savings due to the extra security their home provides. With a successful application, this will enable you to borrow 100% of the value of the property and possibly even more.

There are other ways you may be eligible for a no deposit home loan. Follow the link to read up on what they are and how you may apply.

If a person is trying to obtain a home loan and he or she does not meet the requirements, a lender may ask the person to supply a guarantor. The lender asks for this because they do not feel comfortable with the borrower’s ability to make repayments. This situation usually occurs when an applicant has no deposit, bad credit, or little proof of income. Young people and people with low incomes are the borrowers most commonly in need of a guarantor loan.

A guarantor loan is a loan in which the borrowers do not qualify for the loan amount and must gain additional support from a third party. The third party, or guarantor, can be a family member, or in some cases even a friend. The guarantor will either provide additional security or collateral for the loan, or he or she may even help make the payments for the loan.

Having a guarantor, whether it is a friend or a family member, can allow you to get a loan for the full price of the home you intend to purchase. In some cases, you may even be able to get a loan of up to 110% to cover additional costs you may incur, such as stamp duty. Sometimes, this money can even be used to consolidate personal debt.

A guarantor loan is sometimes referred to as a family guarantee loan, family pledge loan, or fast track loan, depending on the lender.

There are two distinct kinds of guarantee agreements. A guarantor loan can either be a servicing guarantee or a security guarantee. The most common type of guarantor loan is the security guarantee. In this type of guarantor loan, the third party’s assets are used as additional security for the loan. If the borrower doesn’t have enough money for a sufficient deposit on the property, or if the borrower doesn’t want to pay mortgage insurance, this type of guarantee will be used. In this case, the lender will allow the guarantor to only guarantee around 20% of the loan instead of the entire amount. This is called a limited guarantee.

Servicing guarantees are typically utilized when the guarantor agrees to help the borrower to make regular repayments on the loan. This type of guarantor loan is very rare and isn’t offered by many lenders. At the beginning of 2011, new nationwide lending laws were put into effect, and, as a result, it is likely that this type of agreement won’t be available for much longer. The new laws require all brokers and lenders to verify that borrowers can handle the proposed debt on their own without hardship, which would not allow service guarantees.

Below are three different guarantor loan examples:

Example 1: Security guarantee.

A couple wishes to buy their first home for the price of $500,000. They are able to afford the loan, but they don’t have the deposit amount of 5% which is required by the bank. A family member acts as a guarantor for the couple by using an owned home, worth $1,000,000, for security on the loan amount of $525,000 (purchase amount plus fees). This gives a loan to value ratio of 35%.

Example 2: Limited guarantee

A couple wishes to buy a home costing $500,000, which they can afford to service. However, they do not have the required deposit amount of 5% required by the lender. A family member agrees to act as guarantor, but only for a percentage of the loan. The guarantor guarantees 20% of the required loan amount of $525,000 (purchase price plus fees) which comes to be $156,250. This gives a loan to value ratio of 80%.

Example 3: Servicing and security guarantee

A couple wishes to buy a home for $500,000, but they cannot afford to service the loan, nor do they have the lender’s required deposit amount of 5%. A family member agrees to act as guarantor for the couple by providing them both with repayment help and security for the loan. The guarantor owns a home worth $1,000,000. This gives a loan to value ratio of 35%.

If you are thinking of becoming a guarantor, it is not a decision to take lightly. If the primary borrower defaults on the loan, you as guarantor will take full liability for the debt. You need to be sure that the person for whom you are acting as guarantor is able to pay back the debt, otherwise you will become responsible for it.

This decision should be thought through very carefully. You should consult your family, as well as a mortgage broker or other financial advisor. As long as the borrower doesn’t default on the loan, agreeing to act as a guarantor can be an excellent way to help someone you love.

If you choose to use a guarantor when you apply for a mortgage, the loan will still be in your name. As such, you will still be able to apply for any applicable government grants including the First Home Buyer Grant.

Get more information on guarantor mortgages.

When you know you have enough income to pay mortgage payments each month, but you simply don’t have enough money saved up to make a good deposit, this can be an extremely frustrating situation to deal with. You might be able to get approved for a mortgage with little or no down payment, but you’ll be forcing yourself to pay for unnecessary costs like lender’s insurance, and possibly a higher interest rate.
Thankfully, avoiding lenders insurance is possible even if you don’t have a deposit saved up. If you have family with equity in a home of their own, or real estate that they are financially responsible for, you might not need to make a deposit at all. This is possible through something called a family guarantee.

Why Banks Require Lender’s Insurance

Before we discuss how a family guarantee can help you avoid lenders insurance, allow us to discuss why it exists in the first place. When a bank decides how to approach a borrower, they perform a complex calculation based on rules that determine how much of a risk you are to them.

As such, a bank has to plan ahead to deal with these risks. If you were to take out a home loan, only to find yourself in a situation where you could no longer pay it off, the bank finds itself in a precarious situation. They home now belongs to them, but it is of no value to them unless they sell it.

Banks are not home salesman, and they are not able to sell the home at its maximum value. In many cases, the bank is forced to sell the home for a loss. This is why they ask for a deposit in the first place. The deposit protects the bank from these losses.

But the bank does not feel protected from those losses if the deposit is too small. They have to find that protection elsewhere, so they hire an insurer. These lender’s insurance companies will cover the losses to the bank if you are no longer able to make your mortgage payments.

Of course, the bank has no reason to pay for the cost of lenders insurance themselves. If that were the only option, they would only lend out to people who could offer a large enough deposit. The banks don’t see it that way, however. They can simply ask the borrower to pay for the lenders insurance, and most borrowers who haven’t saved up a deposit are happy to do so, because they would rather not wait any longer.

How a Family Guarantee Resolves the Issue

With a family guarantee, the risks faced by the bank can be alleviated without making a large deposit and without paying for lender’s insurance. Through this process, the family member agrees to act as a guarantor. They are usually a parent, but they could also be a sibling or a grandparent. They then choose how much of the loan they will secure.

In most cases, the figure chosen is close to 20%. This is because 20% is the size of a deposit necessary in order to avoid lender’s insurance. While no deposit is needed in this case, the family guarantee serves the same purpose to the bank. Essentially, the family member is agreeing that they will be held liable for this amount of the loan if you fail to make your payments on time. They need to back up this claim using equity in a home of their own, or an investment property.

Assessing guarantor credit history is an important part of this process. Not only will the borrower be required to submit documentation. The guarantor will need to do so as well. They will also need to prove that they are financially and legally independent of you.

Benefits of a Family Guarantee

The most obvious benefit is that the borrower is not required to make a down payment in order to avoid or reduce the costs of lender’s insurance. This means that you will be able to buy a home sooner than you would otherwise be able to. You will be able to borrow for the full value of the home without any concerns, including the extra expenses (which usually amount to about 5% of the value of the home).

There are benefits to the guarantor as well. Not only are they able to help their family member buy a home, they can do so with very little risk to themselves. The situation is entirely different from cosigning a loan, which means that the family member could be held liable for the value of the entire home. They are only liable for the value that they have explicitly stated they are willing to secure.

Releasing the guarantee is also possible within a relatively short period of time. If the family member chose to secure 20% of the value of the home, for example, they could be released from the guarantee once 20% of the value of the home had been paid off. They could even be released if the value of the home increased by 20%.

To learn more about family guarantees, visit our website.

How can you buy a home without a deposit? In a post-GFC world there are no loans available that will allow you to borrow 100% of the purchase price without providing additional security. In the past it was possible to obtain loans for up to 106% of the purchase price through lenders such as First Permanent, who did not require any additional security for their loans.

In modern times, the only loans that can allow you to borrow 100% are known as guarantor home loans. There are several different types of guarantees, however the most common is known as a family pledge home loan where your parents offer their home as additional security for your loan.

This isn’t as risky as it sounds! The guarantee can be limited to just 25% or less of the loan amount. You can apply for income protection insurance and life insurance to reduce the risk that you will be unable to make the loan repayments. You can also avoid borrowing to your limit which will enable you to have enough spare funds to make additional repayments, and so clear the guarantee as quickly as possible.

What are the benefits for you of using a family pledge mortgage? Firstly you can borrow 100% of the purchase price, or even a little more to cover costs such as stamp duty & solicitors fees. Secondly the approval criteria is less stringent because the lender has more security for their loan. Thirdly you will not be required to pay for expensive Lenders Mortgage Insurance (LMI).

What are the risks to you and the guarantor? The main risk is that if you are unable to make the payments on your home loan then the lender may ask the guarantor to make the repayments for you or may call in the guarantee. In the worst case scenario the lender will try to sell the borrower’s property before trying to sell the guarantors.

We see the main complication of family pledge home loans is generally not when the borrower cannot make the repayments, as this is very rare. The main complication is when the guarantor and borrower have a falling out and the guarantee is required to be removed. In these cases the borrower can apply to remove the guarantee and if they owe over 80% of the property value then they may be required to pay LMI.

Several lenders such as St George Bank, CBA, ANZ, Westpac & NAB all offer this type of loan product. However only St George calls theirs a “family pledge home loan”, the others refer to their loan using different names such as family equity, fast track or deposit kickstart.

Always borrow responsibly and seek legal & financial advice before applying for any type of loan with a guarantee involved.

Homes are usually the most expensive asset a person has, and prices of homes in Australia are going up constantly.  This makes it virtually impossible and very difficult to make the 5% to 10% deposit usually required by banks and lenders before loans can be granted.

Thankfully a number of banks and lenders offer no deposit home loans which can have you get loan approval even without a deposit.  Keep in mind that you would still need to have savings of at least six months of salary, these are called genuine savings loans.  Generally, without genuine savings such loans are not possible, unless you get a guarantor to support you in order to get a 100% loan without needing a deposit.

This means that home loans of this type can help a lot of prospective borrowers realize their dreams of buying their own home much faster as they would no longer require deposits.  The deposit requirements are often the reason that people are unable to make a loan, or are delayed in making their loan since it takes forever to save up for the deposit in the first place.

Several banks and lenders offer no deposit home loans at different rates.  This means it would be reasonable to first scout around for a good rate of interest.  Do not get the no deposit home loan from just anyone out there. The home loan experts who have access to several banks and lenders with different loan products can help a lot here.  They can show you loan products that have low interest rates and can help you with more choices and great access to no deposit loans.

In essence banks and lenders do require a deposit of around 20% before they approve loans of any kind.  This is to ensure that they are not exposed to too much risk, understanding that no deposit loans is very risky business.

However, it is a fact that there are ways to get a 100% deposit home loan.  This does not mean that they come at the same price.  Because of the additional exposure taken on by banks there are usually additional costs to these no deposit loans, but several people are willing to pay these additional costs in order to get into the real estate market earlier.

So what are the ways to get a no deposit mortgage?  There are a number of strategies that work.

One way is by paying LMI or what is commonly known as Lender’s Mortgage Insurance.  The payment of premiums for this type of insurance can eliminate the need for a 20% deposit.  It is a win-win situation as banks are protected from risk, while at the same time borrowers don’t need to save 20% deposit and can get into the real estate market as quickly as possible.

Another means of getting a no deposit home loan is by mortgaging another property.  The other property will serve as replacement for the deposit, and works in the same way as LMI in reducing the risk that the bank is exposed to.

Finally there is the guarantor.  The guarantor will pay where the borrower will be unable to pay.  With the help of a guarantor no deposit home loans are possible.

We at the home loan experts have access to all these types of no deposit mortgages.  We can help you select what we feel will work the best for you.  If you want to learn more about these types of loans, do not hesitate to contact us.  We will answer and provide you with quality information based on your enquiries.

Did you think that a home loan at 100% is no longer possible?  Well we would like to show you that it is still possible with a little help.

The usual percentage that home loans are granted often reach up to only 80% of the total property value.  Why do you think it is set up to a certain point?  This is because banks and lenders are trying to reduce their risks by not lending out too much to one particular person.  However, there is still a way to get a 100% home loan.  This is with the help of a guarantor.  The guarantor will assure the bank or lender that a borrower will be able to pay.  The guarantor then offers something as security.  The security may be in the form of cash, stocks, property or any other security deemed to be acceptable by the bank.

Often guarantors are family members, most common of whom are parents who would like to help out their children purchase their first home, or they can also be close relatives who wouldn’t mind helping their blood relations get a place of their own.

With the help of these guarantors a 100% home loan is now possible.  In addition it is also a nice way of avoiding payment of Lenders Mortgage Insurance (LMI) which is required for loans of 80% or more of the value of the entire property.  These guarantees can also help avoid the unreasonable at interest rates for all loans above 80%.

These multiple benefits plus the fact that you are able to get a larger loan should encourage family members to help one another get a 100% family guarantee.  The entire family unit can save a lot by avoiding high interest rates and unnecessary premium payments.

The home loan experts will help and show you the best way to capitalise on the use of a family guarantee.  They have access to the banks and lenders who will most likely be willing to grant these types and forms of loans.

There is no doubt that property prices of Australian real estate are constantly on the rise.  Due to this fact, it is becoming harder and harder for investors and first home buyers to make the initial deposits, or get a loan in the first place. What makes it more difficult is that often the market values of properties often rise rapidly, faster than the income you make and the savings you put in your bank account.
Several banks and lenders recognise this continuous problem, and have tried a number of ways to remedy and fix the existing problem.

One of the solutions to get around the deposit that you require is through a family guarantee. The basic idea of a family guarantee is that it will allow you to purchase a home without the need for your own savings as a deposit. With a family guarantee, the existing equity in the guarantor’s home can be used to add as funds for the loan.

A family guarantee however requires that the family member making the guarantee has adequate assets of their own. This means that a family guarantee may not be as effective if the family member acting as the guarantor has low assets of their own, or does not have a good credit score.

With a family guarantee, you are able to apply for many loan types. The loan can have a fixed or variable rate, it can be a no doc or low doc loan, capped rate loans, and many more.

So what are you waiting for? Why loan just 90% when you can loan up to 100% of the property’s value with a guarantee home loan.