We believe in responsible lending practices and will not assist someone to obtain a guarantor home loan if we believe there is a high chance that the guarantor will be put at risk. Part of our services is to help reduce the risk to the guarantor.

How responsible is the borrower?

Generally the guarantor is a close family member who knows the borrower well. Should they have any concerns about the responsibility or financial stability of the borrower, then we don’t recommend that they enter into this arrangement. If their relationships, finances and employment are all steady, then the guarantor risk is significantly reduced.

A handy hint: Ask the borrower for 3 months statements for their main cheque account. This will allow you to assess if they are good at handling money and can deal with a large financial commitment.

Insurance / Financial buffer

We recommend that the borrower consider taking out insurance to limit the risk of the guarantor, should unforeseen circumstances occur. We recommend one or more of the following types of insurance:

• Income Protection Insurance
• Life / Total & Permanent Disability Insurance
• Loan Protection Insurance

In addition, we recommend that the borrower aim to keep $10,000 in their loan account as available redraw. This can be drawn down in an emergency or in the event of an unexpected major expense.

The combination of keeping spare funds on standby and a well designed insurance package will prevent many problems in future problems arising and give both the borrower and the guarantor peace of mind.

Financial responsibility

Did you know that one of the main reasons that people default on their home loans is not because of rising interest rates, but instead is because of their excessive consumer debt. After buying a home, many people continue to take out new loans for cars and furniture which results in the inability to make home loan repayments.

When you buy a home you need to limit your spending and begin making extra repayments to your loan. This can be achieved by:

• Reducing your credit card limits or cancelling your credit cards.
• Not paying for holidays and other luxuries on credit.
• Not using a car loan or personal loan until the guarantee is removed.
• Making extra repayments to your home loan.

Living a lifestyle beyond your means and funding it using a credit will get you into a lot of trouble if you already have a home loan to repay.

It is essential that you aim to prioritise your financial commitments to avoid future complications, including defaulting on your home loan.

Contingency plans

So what should you do if things don’t go to plan? We recommend that you talk to your lender to work out a solution. Most lenders are willing to provide help and only see selling the property as a last resort.

If you are unable to afford the repayments then it may be a good idea to move into a smaller rental property (or move in with family) and rent out your existing home out. The combination of the low rental expense and negative gearing benefits may help you repay the debt.

If the previous option will not work then consider selling some of your valuable assets such as your car or shares.

Equally, accessing your superannuation fund before retirement can provide additional funds. However, this is only available if you are experiencing severe financial hardship. Refer to your super fund for more information.

As a last resort you should sell your property, rather than risk the guarantor being forced to make repayment on your loan. It is advisable that you take action to put your property on the market rather than the lender doing it for you and possibly forcing a quick sale.

Get legal advice

We strongly recommend that all guarantors seek legal advice before entering into a guarantee. Most lenders will require that this condition be met before advancing the loan. It is very important that the guarantor is fully aware of how a guarantee works and the consequences of entering into a guarantee.

Speak to an expert mortgage broker

We are specialists in guarantor home loans and know how to protect the guarantor. We’d love to work with you to help you buy a property using the help of a guarantor. Please enquire online and one of our staff will give you a call to see if this type of home loan is suitable for you.