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What is a guarantor and how does
a guarantor loan work?
A guarantor is someone who provides a guarantee on your mortgage by using their property as security. In most cases, this will be your parents using their home.
Some lenders will allow your guarantors to be immediate family members such as siblings, grandparents, spouses, de facto partners or adult children.
Once you have paid off part of your loan or your property has increased in value then you can apply to remove the guarantor.
Don’t pay lenders mortgage insurance!
Lenders Mortgage Insurance (LMI) is a one off fee that you have to pay when borrowing more than 80% of the property value.
LMI protects the bank in case you default on your mortgage, it doesn’t protect you as the borrower. The premium isn’t cheap either.
Depending on the property price and how much you’re borrowing, you could easily be paying more than $10,000.
With a guarantor though, lenders see you as less of a risk and will waive the cost of LMI!
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