Struggling to get approval for a home loan based on your income?

Unable to find a guarantor that can offer their property as security for your loan?

A loan backed by a term deposit guarantee may be the solution to your problem!

Find out how you can borrow the maximum LVR, whilst ensuring that your guarantor is protected from risk.

Please read on for more information.

What is a term deposit guarantee?

A term deposit guarantee or a cash guarantee is a type of guarantor home loan where the guarantor provides money as security for the bank, rather than their home.

The bank will take a guarantee over a term deposit that the guarantor holds with that bank.

This is an uncommon type of security guarantee and is generally used when the borrower is looking to borrow close to 100% of the purchase price.

How does a term deposit guarantee work?

The guarantors put their funds into a term deposit with the bank that the borrowers are using.

The bank will then hold onto the term deposit and keep rolling it over until the guarantee is removed.

If the term deposit funds are later required by the guarantor, most lenders will move the guarantee onto a property with minimal hassle and the funds will then be released.

How much do I have to provide as a deposit?

Most banks require the guarantor to provide at least 25% of the purchase price as a deposit.

This is generally enough to protect the lender from any risk of default by the borrower.

For example, if a borrower wishes to buy a property for $550,000, the guarantor must put $137,500 towards the purchase price to meet the bank requirements of a sufficient term deposit.

This is great for those that have spare cash available, but can be quite an onerous obligation for some.

Who should apply for a term deposit guarantee?

This type of loan is suitable for guarantors that have lots of cash that can be used as a term deposit.

It is also a great alternative for those that do not want to put property up as security for the guarantee.

Alternatively, if there is already a security guarantee in place and the guarantor is looking to sell their property, the guarantee can be moved from the guarantor’s property into a term deposit that comes from the proceeds of the sale.

However, this is situation is only acceptable with some lenders and only in extenuating circumstances.

Benefits of a term deposit guarantee

A term deposit guarantee is a great way to provide peace of mind to the guarantor.

Unlike a security guarantee where the guarantors assets are exposed to risk, the liability of the guarantor is limited with a term deposit guarantee.

This makes it quite an attractive option for both borrowers and guarantors.

The term deposit remains in the guarantors name and the funds can be accessed as soon as the guarantee is removed or moved onto a property.

We can help you apply for a term deposit guarantee!

Talk to our expert mortgage brokers on 1300 399 056 or enquire online today.

Will I still earn interest?

Yes, the bank will continue to pay you interest from the funds in your term deposit.

However, as you cannot change banks, you will have to accept whatever rate of interest they offer you when the term deposit rolls over.

Can the guarantor withdraw funds?

As this amount is security in case the borrower defaults, the funds cannot be accessed whilst the guarantee is still in place.

Therefore, it is important the guarantors are in a good financial position and can live comfortably without the deposit funds.

Once the guarantee has been removed, the guarantor is then free to withdraw their funds from the account, or can choose to keep an account open with that bank.

Why use money instead of a property?

Many guarantors prefer not to risk their property when helping their son or daughter buy a home.

As a result, a few lenders now allow guarantors to provide money as security rather than property.

The main advantage is that the guarantors property remains secure from creditors, in the event that the borrower cannot make their loan repayments.

Because the property is not part of the guarantee you are also free to sell or mortgage your property as you please, without affecting the guarantee.

Get a term deposit guarantee today!

A term deposit guarantee may be exactly what you need to get your loan approved.

To find out if this style of guarantee is suitable for you, please speak to us on 1300 399 056 or enquire online and one of our expert mortgage brokers will call you to discuss your situation.