110% Home Loans

No deposit home loan seekers may be noticing a new offer of a 110% home loan advertised recently.

What marketing people have actually done is labelled a no deposit home loan concept that has been available for quiet some time as a 110% no deposit home loan!

This type of home loan where borrowers who do not have any deposit is a very good idea but it may not be suitable for everyone.

The basic concept is that there must be a guarantor involved.

The guarantor is a guarantor of additional loan security rather than guaranteeing that the loan applicants can afford to repay the loan as is traditionally the case with a guarantor to a loan.

A simple way of explaining how the security guarantor concept works is as follows.

A home loan applicant wishes to purchase a home and does not have enough deposit saved.

A guarantor who owns property and has sufficient equity in their property agrees to help the home loan applicant by guaranteeing additional security.

Let’s say the applicants need $300,000 to purchase a home that is for sale for $290,000.

This is a loan to value ratio, or LVR, of more than 103%.

To take advantage of this 110% home loan offer we need to reduce the loan to value ratio or LVR, to 80% overall.

How this is achieved is that a portion of another property, hence the security guarantee, is put up by a guarantor.

Basically this is how it works mathematically.

The home loan required is $300,000 and the property value is $290,000.

Normally to avoid mortgage insurance the maximum LVR would be 80% meaning that the maximum loan size allowed would be only $240,000.

Now a security guarantor can agree to the lender taking a mortgage over the guarantor’s existing property to make up the missing security value.

In this scenario the security guarantor will need to have $60,000 available equity in their existing property for the lender to take a first or second mortgage over.

This effectively means there is no mortgage insurer involved and the lender has a comfortable loan to value ratio of 80%.

So where did the 110% home loan go? Trust marketing people to make things sound different!

Most lenders have a maximum threshold of how much additional security can be guaranteed and this is usually 110% of the property to be purchased.

All the same this option is a very good idea for those who have a security guarantor who is willing and able to help out. Thousands of dollars in mortgage insurance alone can be saved.

Ability Finance Brokers who have helped many customers with this type of no deposit home loan and can be contacted on 02 8002 4035 for further information.

Complete and email this form to begin a equity guarantor home loan approval or pre-approval.