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