Guarantor home loans and insurance
Get help with your home loan deposit
Desperate to get into the property market but don’t have enough money for a deposit? Guarantor loans are one of Australia’s most popular ways to buy your home without having saved enough deposit. Talk to your friendly ITP Home Loans professional today about securing a guarantor home loan to help your dreams come true.
Sensible, (almost) deposit free home loans
If you’re short on deposit funds and your parents (or someone else) are happy to assist then a guarantor loan makes real sense. Using their own home or other property as partial equity, your parents guarantee your home loan amount, up to 105% of your purchase price. It’s a great deal for you because:
- Your parents aren’t liable for the whole loan amount, only a pre-agreed sum
- Your lender will usually only require minimum savings on your part of 5% of the purchase price
- You won’t have to pay Lenders Mortgage Insurance (see below)
- If the value of your home increases, and/or you’ve paid off some of your home loan, then the guarantee can often be removed
What is Lenders Mortgage Insurance?
If you take out a home loan in which the Loan to Value Ratio (LVR) is over 80%, then you’ll also have to pay Lenders Mortgage Insurance (LMI), which can be quite costly. A LVR over 80% means that your deposit is less than 20% of the property value. Lenders Mortgage Insurance covers the banks loss on the sale of the property should you default on your home loan, this offers the customer no protection only the lender. But the obvious benefit to you is that you’ll be able to buy your home without saving a huge deposit.
This type of insurance is not to be confused with mortgage protection insurance, which is taken out by you to cover your mortgage repayments in the event of death, disability or illness.
How much is LMI?
Lenders Mortgage Insurance is a non-refundable, single payment made at your loan settlement, which includes stamp duty and GST on the LMI premium. It can usually be included in the total amount of the loan, but you’ll have to pay interest on this total amount. The cost of LMI can vary, and depends on:
- The percentage of the property value borrowed
- The loan amount
- Often whether you’ve genuinely saved your deposit amount, or it’s come as a gift, or from other sources
- Whether you’re applying for the First Home Owner Grant
- Whether or not you’re going to be an owner-occupier, as insurance companies believe that you’re less likely to default if the property’s your actual residence
So the LMI amount is decided case by case, but it could cost up to thousands of dollars.
Are there exemptions to LMI?
If you meet some strict criteria, you may not have to pay LMI for a low deposit home loan. These conditions can include:
- Your LVR is only marginally over 80%
- Your lender has a LMI-like scheme within its organisation
- If you’re a professional such as a doctor, lawyer or some engineers you may only have to pay LMI when your Lender Value Ratio exceeds 90%
- Sometimes your lender has the capacity to allow you to pay a one off risk fee, instead of LMI. These don’t have the added taxes. Or, particularly if your credit history isn’t great, you may have to pay both risk fee and LMI.
Your helpful consultant at ITP will be able to talk you through all your options and help you decide on the most suitable mortgage type and home loan rate for you. So get in touch today. Email us, or make an appointment to see an advisor face to face. Alternatively, give our helpful ITP Home Loans consultants a call today on 1300 387 487.