HomeSide Family Guarantee
HomeSide Family Guarantee Review
Saving up for your first home can be such a long and harrowing experience, that few people ever forget it. That is why in many cases, when a family member sees you going through the savings struggle they remember all too well, they will want to help you and they can with a family guarantee.
What is a Family Guarantee?
When you take out a home loan, you need to provide the lender with security. That security usually comes in the form of the property you are purchasing, plus a cash deposit to reduce the value of your loan in proportion to the values of your home. The Homeside Family Guarantee allows a family member, such as your parents, to give your lender a guarantee against your loan.
While the family guarantee is most popular with first home buyers, it can be used by any borrowers who need to provide extra security on their loan, and includes features such as:
- A limited guarantee.
- Can be used with any Homeside home loan product except the Peak Performance Equity loan and a low doc loan application.
- The guarantee must be supported by a first registered mortgage over a residential property, or a NAB term deposit.
- Reduces your loan to value ratio and reduces the lender’s perceived risk of you as a borrower.
- You must be able to make your loan repayments without the help of your guarantor.
- Can be used for owner occupier or investment loans.
- Can help you avoid paying lenders mortgage insurance.
- Means you don’t have to have savings to cover your deposit amount.
- Only one family guarantee can support a Homeside home loan.
Features of a Homeside Family Guarantee
To help you decide whether a family guarantee could help in your situation, consider exactly how a Homeside Family Guarantee works. For example, if you:
- Want to buy a home valued at $350,000.
- Can afford repayments on a $350,000 mortgage.
- Want to borrow 100% of the purchase price because you don’t have enough savings for a deposit, or you want to leave your money in other investments.
- Want to avoid paying lenders mortgage insurance – this means you will need to reduce your loan to value ratio to 80%.
If your parents’ home is valued at $600,000 for example, and they give you a family guarantee of $70,000 from their home value, reducing the loan amount to $280,000 which is a loan to value ratio of 80%.
The guarantee amount is chosen by your guarantor, and must be less than the loan amount. Plus, because your guarantor is only providing a portion of the loan amount, if you default on your loan, they are not liable for the full loan amount, only the amount of the Homeside Family Guarantee.
You can choose a guarantor who is:
- An individual over the age of 18.
- A trustee as a company or discretionary trust.
LVR and LMI
It is always the goal to reduce your loan to value ratio to remove the need to pay lenders mortgage insurance. When you are using a family guarantee for your home loan, LVR calculations and limits include:
- The limited amount of the family guarantee must not exceed 50% of the value of the guarantor’s supporting first registered mortgage security, or 100% of the face value of their term deposit.
- The guarantor’s overall exposure must not exceed 80% LVR when using their first registered mortgage, or 100% when using a NAB term deposit.
If you are using a family guarantee but your loan to value ratio is still more than 80%, you will have to pay LMI. The LMI insurer will have to approve the application and may require additional information for the insurance purposes.
Using a Term Deposit as Security
Typically a guarantor offers their own home as security in a family guarantee. However, if your family member has a NAB term deposit account, this can be used as an alternative. A term deposit is a fixed savings amount in a fixed account, earning a fixed interest rate for a fixed term. Therefore, when NAB holds a term deposit, they securely hold your money, and that security can be your security for your new home.
Your guarantor can use up to 100% of the face value of their term deposit account to guarantee your loan, and the NAB term deposit can be opened at any branch, before unconditional approval of the loan is granted. To open a NAB term deposit account your guarantor needs to complete an identity check, and also provides their tax file number of avoid paying withholding tax on their interest earned. The funds must also be deposited to the term deposit account on the day the account is opened.
To use the term deposit as security, your guarantor needs to provide:
- The amount of their term deposit.
- The account number and BSB of the term deposit.
- The name of the owner of the account, which must be the same names as the family guarantors.
- Details of any other debts which are already secured against the NAB term deposit.
The term deposit is maintained by NAB and there are no brokers’ fees to pay on the term deposit account. The term deposit account must remain open for as long as it is acting as security in the Homeside Family Guarantee. If your guarantor wants to prepay part of their term deposit, they must negotiate with a NAB Broker.
Types of Guarantees
There are three ways you can have a family member become a guarantor for your Homeside home loan:
- Guarantee and indemnity. This is used to support a loan which is for personal investment purposes and must secure the full amount of the debt. A guarantee and indemnity can use a first registered residential mortgage as security.
- Consumer guarantee. Consumer guarantees are used to support a loan for an owner occupier purchase and must be for the full amount of the loan. A consumer guarantee can use a first residential mortgage as security.
- Family guarantee. Can be used to support either an investment or owner occupier loan and cannot be used for the full amount of the loan, but must nominate a limit. The Homeside Family Guarantee can be supported by a first registered residential mortgage or a NAB term deposit.
To release a guarantor from a home loan a request must be made, either by the borrower or the guarantor. The loan will then be reassessed and must await approval by a credit manager. New contracts are not required upon a release, but both the borrower and the guarantor must agree to the changes.
Related posts:
- How to use a Family Guarantee to get a Home Loan
- How to use Family Equity for a home loan deposit
- Homeside Fixed Rate (Interest Only Mortgage)
- Family Pledge Loans
- HomeSide Home Plus Package
- Homeside Mortgage Broker
- Home Loans Guarantor
- Co-borrowing and Family Support when getting a home loan
- Should I go guarantor for my son’s home loan?
- Family Equity Loans – Do You Really Need It?
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