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Ways to Removing a Guarantor From Home Loan Guarentee - YouTube
Channel: Mortgage Broker Australia - Hunter Galloway
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Guarantor home loans are incredibly popular
these days but what do you do when you want to
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remove the guarantor?
Today, we're going to take you through
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how to actually do that, what it looks like
and the steps you need to go through
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to cut ties with your guarantor.
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So Nathan, first up, how long does
the guarantor actually stay on the mortgage?
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Usually, we find the guarantee stays anywhere
from two to about five years,
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depending on a couple of things.
The first one is how quickly you pay down the loan.
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The second is how quickly your
property increases in value.
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So when we get to that point where
it makes sense, usually when we're lending
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no more than 80% of the property value,
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we look to remove that guarantor
and free your folks, or your parents
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or your grandparents or whoever it was
that was on the property, to assist you with
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the guarantee away from it.
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Hm, okay, so typically though, by default,
they won't get removed automatically?
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So you need to actually go through that process.
So Nathan, what are the steps of removing
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the guarantee if you've got a 90% loan
or you've even got, say 10% equity in your home.
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If there's less than 20% equity, you will have to
pay what we call 'lenders mortgage insurance.'
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It's a one-off premium.
It is charged by the lender to protect the lender
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and is compulsory.
There are some circumstances where you can
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have it removed.
However, if you are lending over 80%,
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you would pay lenders mortgage insurance.
Once off, add it to the loan, covers you for
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life of the loan and in some circumstances,
you may have to remove it and pay that,
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which is the cost of removing a guarantee
but if it has to happen, it has to happen.
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Yeah, so you could be in a situation
where your parents might have sold their home
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and they want that money back.
Or there could be other situations
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that you might have to go through.
So potentially, doing that refinance
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like Nathan said, where you put about 10% equity
or say, you've got a million dollar property
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which is I'm just using it because easy numbers,
and you own $900,000 on it, it's one way
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you can put, maybe in your parents’ house
or the guarantors house so you're free and easy.
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But generally, if you're doing it that 90%,
you might need look an internal refinance
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with that bank.
Nathan, what happens if you want to remove
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the guarantee at an 80% LVR?
Or if you have 20% equity in your own home?
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So remember, every time you look to remove
the guarantee, you are doing an application
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with the lender, so they're going to assess you
based on your income as of application day.
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They'll look at the property value
as of application day.
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So they'll do the assessments,
they'll look at everything as of today.
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So you start in Day 1 basically?
- You are starting again.
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You need to do a brand new application
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and also, you'd be quoted fresh fees and charges,
everything that's associated with
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a brand new mortgage. You'd start again.
The good thing is you've removed
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the guarantees off, so it gives them
a breath of fresh air that can move on
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and you can move forward
with your property on your own.
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Well, I guess the three things that are
good about removing the guarantee when
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you've got a 20% deposit are Number 1,
you avoid lenders mortgage insurance.
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Because you've got the 20% equity in there,
hooray, you missed that,
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which could be thousands of dollars.
Number 2 is because you've got more equity
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in the loan and you got, you know,
a hard deposit on that 80% loan,
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the interest rate could be lower
than if you're removing it at 90%.
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And number 3 is that it can actually
simplifies the process.
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So usually, if you have less than a 20% deposit
or less than 20% equity, the bank is going to
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ask you a lot more questions because you're actually
seen as higher risk to them compared to
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someone who had a 20% deposit.
So doing that way can be a great way to
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really fast track that, get you better rates
and actually, get you separated from the parents'
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or the guarantees' loan, so you can stand
on your own two feet again.
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So Nathan, a couple of curveball questions
because why not? Can my guarantor sell their home?
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They can. Now, keep in mind that there is
a second mortgage registered on their property,
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so when they sell their home, that second mortgage
either needs to be paid out by the guarantor
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or you'll need to refinance your property so that
you can add that second mortgage back
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onto your property.
One quick thing there is you do need equity
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in your property, so if you just set up
the guarantor and they're selling their property,
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you might not have enough equity
in your exact property that
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you're looking to refinance it on.
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Another quick question in removing the guarantee
from a guarantor home loan is can I sell my house?
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Absolutely. You can indeed. Once again,
remembering if you have lent 100% of
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the purchase price and you under sell
your property, you're going to have a residual
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leftover and that will be left on
the guarantee's property.
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So you just want to make sure if you are selling,
you cover the full debt.
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So I guess Nathan, let's round it off.
The guarantor stays on your mortgage by default
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forever while you got that loan,
until you want to remove it.
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You can remove it if you've got
a little bit of equity.
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The easiest way is obviously
paying it down quicker.
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Any other tips that you have in
this sort of structure?
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Yeah, as you said before, you have to refinance
your loan to remove the guarantee.
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So it will not be removed automatically.
Generally, the best rule of thumb after two
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to about five years, your loan will have gone down,
your property should have increased in value
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-- fingers cross -- and that's a good time to
revisit it and try and remove the guarantee.
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If you want more information on guarantor
home loans or removing a guarantor,
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check out our website
at HunterGalloway.com.au.
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