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Guarantors Support

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Description

Guarantor Support is available to assist customers obtain a home loan when they are unable to provide adequate security in cases where the loan amount exceeds normal lending margins; and/or if they are unable to provide adequate servicing (for non-personal borrowers only).

Borrowers may consider adding co-borrowers to their loan application if they do not wish to obtain support from a guarantor

 

Benefits

Guarantor Support enables customers (in particular first home buyers) to:

  • Borrow more funds than they may have been eligible for without a guarantee
  • Eliminate the need to pay for Lenders' Mortgage Insurance (LMI) or Low Deposit Premium (LDP) where the guarantee reduces the customer’s Loan Valuation Ratio (LVR) to a level where LMI is not required. 

 

Eligibility

A guarantor to a loan must be one of the following:

  • An individual, 18 years or older, living and working in Australia who is:
    • an Australian citizen
    • a New Zealand citizen, or
    • an Australian permanent resident
  • An individual, 18 years or older, living and working overseas, who is an Australian citizen
  • Australian registered company
  • Family, unit or hybrid trust, where the trustee may be:
    • an individual or
    • a company

 

Options

The following options are available.

Borrower Type Types of support

Personal Borrower

A personal borrower must be able to service the loan amount based on their income and total repayment commitments. Under no circumstances can a guarantee be taken if the borrower is unable to demonstrate servicing in their own right.​

Security support only

subject to the application falling into one of the following scenarios:

Non-Personal borrower

i.e. where the application includes at least one borrower who is a company or a company as a trustee.

Servicing and/or security support

 

Family Security Support

Family Security Support makes it possible for customers to get a home loan when they’re unable to provide adequate security to the Bank on their own.

Family members of the borrower, i.e. a parent or guardian, adult child, sibling, or grandparent (it can also be a former spouse or legally appointed guardian) may offer the equity in their property in addition to the borrower's property being secured by the loan. Other family members (such an aunts/uncles) may only be accepted where approved by Credit.

If approved, the family member guarantees the loan which is supported by the property they are offering as security.

 

Family Security Support isn’t available for:

  • Borrowers who do not have an ownership interest in at least one security property supporting the loan unless the purpose of the borrowing provides direct benefit to the security provider (e.g. adult son or daughter borrowing for the purpose of providing aged care for their parents using their parent’s property as security)
  • Individual guarantors receiving a Government pension and using their principal place of residence as security, unless the security is in joint names with the borrower
  • Off the plan purchases or loans where foreign income is used for servicing
  • Individual guarantors who are not a family member of the borrower/s e.g. friend or neighbour
  • Viridian Line of Credit (VLOCs).
  • Loan purposes unrelated to the purchase, construction, renovation or refinance (where the original loan purpose was for purchase, construction or renovation) of a property (including personal investment, purchase of a car, personal goods, cash-out, debt consolidation etc).
  • Interest only repayments (other than during a construction period).

Note: The above restrictions do not apply for marital/de facto relationships

 

Family Security Support required loan structure

The required loan structure is an 80% / 20% split (plus costs to a maximum of 7%). The maximum loan amount for the guaranteed loan must not exceed 20% plus associated purchase costs to a maximum of 27% of the borrower’s property value. The maximum total lending against the guarantor’s security property must also not exceed 70% of the guarantor’s property value.

An 80 / 20 (plus costs) split is:

  • Application 1 is secured by the:
    • Borrower's property only (80% of the borrower’s property value); and
  • Application 2 (the remaining loan amount) is secured by the:
    • Borrower's property (20% plus costs to a maximum of 7% of the borrower’s property value); and
    • Guarantor's property (total lending including any existing charges must not exceed 70% of the guarantors property value).

If the borrower’s property is located in a postcode where LMI is required from a 70% LVR, the required loan structure is a 70% / 20% split (plus costs to a maximum of 7%). Any shortfall in funds must be provided from the borrower’s savings/deposit. See Security Lending Margins and Postcode Lookup Tool.

A 70 / 20 (plus costs) split is:

  • Application 1 is secured by the:
    • Borrower's property only (70% of the borrower’s property value); and
  • Application 2 is secured by the:
    • Borrower's property (20% plus costs to a maximum of 7% of the borrower’s property value); and
    • Guarantor’s property (total lending including any existing charges must not exceed 70% of the guarantor’s property value).

Notes:

  • Total lending is defined as total existing debt secured by the guarantor property + amount pledged under the proposed guarantee + any existing guarantees secured by the guarantor's property.
  • Where the guarantor offers a cash security, the maximum lending margin remains at 100%.
  • Variations to Family Security Support loans are subject to the maximum total lending restriction of 70% of the guarantor’s property value where the variation results in an increase in exposure against a guarantor security property (such as where the loan has originally been secured by two guarantor properties and one is to be released).
  • Variations to Family Security Support loans that have no detrimental impact to the exposure against a guarantor security property may be exempted from the total lending restriction of 70% where accepted by Credit. For example, where the LVR has increased simply due to a new valuation or where a variation results in a decrease of total lending against the guarantor security property from 80% to 75%.
  • Where an existing guarantor who has provided Family Security Support to a family member requests to take out their own new or increased lending, they may do so up to standard lending margins and are not required to cap the lending to 70%.
  • Where a Family Security Support loan is refinanced (internal or external), the original purchase costs may be refinanced where they have not yet been repaid.

Example: Purchase

  • Sally Smith wants to borrow $300,000 to buy a property (Property A) valued at $285,000 and also to cover the associated purchase costs.
  • The Loan to Valuation Ratio (LVR) for this example is 105%, which is outside of acceptable security limits.
  • To help Sally get her loan, her parents have agreed to provide to the Bank a mortgage over their property (Property B).
  • Property B is valued at $500,000 with a prior CommBank mortgage of $150,000.

Sally's loan structure would be:

Application 1 Application 2
  • Loan amount: $228,000
  • In the name of: Sally Smith
  • Secured by: Property A
  • LVR: 80%, i.e. $228,000 / $285,000
  • Loan amount: $72,000
  • In the name of: Sally Smith
  • Secured by:
    • Property A
    • Guarantee by Sally's parents supported by Property B
  • Total lending on the guarantor’s security property = total debts and guarantees secured by the property ($150,000 + $72,000 = $222,000) / property value ($500,000) LVR = 44.4%

In this example:

  • The loan amount for the guaranteed loan ($72,000) is equal to 25% of the purchase price of the new property ($285,000) inclusive of associate costs which is within the required cap of 27%.
  • The total lending against the guarantor’s security property is also within the acceptable limit of 70%. This is calculated as total lending ($150,000 + $72,000 = $222,000) / property value ($500,000) = 44.4%.

Note: any redraw held needs to be considered when calculating total lending against the security value.

Example: Top-up

  • Omar purchased land for $170,000 last year and is looking to construct a property.
  • Omar’s existing loan structure is:
    • $140,000 secured by the land; and
    • $36,000 secured by the land and his sister’s property.
  • Omar needs an additional $300,000 to fund the construction of a property (as the land is already owned there are no purchase costs).
  • The new property is valued at $500,000 on completion.
  • Omar’s sister has offered her property valued at $350,000 as a guarantor security. The property secures an existing debt of $150,000.

The new loan structure will be:

Application 1 Application 2
  • Loan amount: $400,000
  • In the name of: Omar
  • Secured by: Omar’s land and build
  • LVR: 80%, i.e. $400,000 / $500,000
  • Loan amount: $76,000
  • In the name of: Omar
  • Secured by:
    • Omar’s land and build
    • Guarantee by Omar’s sister supported by her property valued at $350,000
  • Total lending on the guarantor’s security property = total debts and guarantees secured by the property ($150,000 + $76,000 = $226,000) / property value ($350,000) LVR = 64.57%

In this example:

  • The loan amount for the guaranteed loan ($76,000) is equal to 15.2% of the land and build value of the new property ($500,000) which is within the required cap of 20%.
  • The total lending against the guarantor’s security property is also within the acceptable limit of 70%. This is calculated as total lending ($150,000 + $76,000 = $226,000) / property value ($350,000) = 64.57%.

 

Guarantees for non-personal borrowers

A non-personal borrower is where at least one borrower is a non-trading company or a company as a trustee for a trust where the beneficiaries are individuals. Where a non-personal borrower is involved in an application, guarantees are required from company directors, as well as shareholders when appropriate.

Guarantors may provide support to non-personal borrowers in one or both of the these ways:

  • Security Support: when the non-personal borrower is unable to provide adequate security for the borrowing amount, a guarantor may be willing to provide security to assist.
  • Servicing Support: when the non-personal borrower is unable to service the loan amount based on their income and total repayment commitments, a guarantor may be willing to provide income to assist with the loan repayments.

For example:

Guarantor providing servicing support only Guarantor providing servicing and security support
  • ABC Pty Ltd wants to borrow $300,000 to help purchase a new property.
  • ABC Pty Ltd's security property has been valued at $400,000.
  • Loan to Valuation Ratio (LVR) for this example is 75% and therefore within acceptable security limits.
  • Based on ABC Pty Ltd's current income and repayment commitments, ABC Pty Ltd can't service a $300,000 loan.
  • In order to help ABC Pty Ltd get the loan, a company director agrees to act as a guarantor and provide servicing support.
  • The guarantee provided is for the total amount of ABC Pty Ltd's loan.
  • Servicing capacity is assessed using both ABC Pty Ltd and the company director's incomes and repayment commitments, allowing ABC Pty Ltd to borrow the $300,000 it requires.

As no security is provided, it's an unsupported guarantee.

  • ABC Pty Ltd wants to borrow $300,000 to help in purchasing a new property and also to cover the associated purchase costs.
  • The security property has been valued at $285,000
  • Loan to Valuation Ratio (LVR) is 105% and is outside acceptable security limits.
  • Based on ABC Pty Ltd's current income and commitments, the company can't service a $300,000 loan.
  • In order to help ABC Pty Ltd get the loan, a company director agrees to act as a supported guarantor and provide both servicing and security support.
  • The guarantee provided is for the total amount of ABC Pty Ltd's loan.
  • Servicing capacity is assessed using both ABC Pty Ltd and the company director's income and repayment commitments allowing ABC Pty Ltd to borrow the $300,000 it requires.

As the guarantee is supported by security, it's a supported guarantee.

 

For non-personal borrowers, we may approve new and increased credit facilities if the total ongoing financial commitments (including both new and existing commitments) can be serviced by the:

  • Borrower's eligible income; or
  • Combined eligible incomes of the (non-personal) borrower and guarantor after allowing both the borrowers' and guarantors' ongoing financial commitments

You must consider the value of any security provided by the guarantor in the calculation of the Loan to Valuation Ratio (LVR) for the application. The security requirements for a guarantor are the same as those for a borrower.

 

Guarantor Checklist

All guarantors must be interviewed separately from the borrowers, in person (face to face not via the telephone) and you must consider if the guarantor is suitable and/or whether independent legal advice is required:In all cases, you must recommend the guarantor seek independent legal and financial advice.

The following checklist should be used as a guide to help you assess if an individual is suitable or not to become a guarantor. If you can answer yes to any of the indicators below then the guarantor is not suitable.

Questions to ask yourself Indicators
Does the guarantor appear to be under duress or are there any signs of financial abuse?
  • Has the guarantor indicated that they are under pressure to act as guarantor?

  • Has the guarantor indicated that they feel obliged to support the borrower/s financially?

  • Does the guarantor appear withdrawn, uneasy, and fearful (particularly of the borrower/s)?
     
Does the guarantor appear illiterate?
  • Is the guarantor unable to read and understand documents such as the Guarantor Fact Sheet (other than for the reason English is not their first language -for this reason see table below)?
Is the guarantor likely to be put into hardship if the guarantee was enforced?
  • Does the guarantor’s financial position not support the payment of the proposed guaranteed amount (e.g lack of assets or income, such as a term deposit, that they could potentially use to help repay the loan besides their property)?

  • Does the guarantor appear to be suffering from any serious illness or mental illness?
     
Does the guarantor appear incapable of making an informed choice?
  • Does the guarantor appear to suffer from any cognitive or age-related impairment which restricts their ability to make an informed choice (such as dementia)?

 

The following checklist can be used to help you determine if independent legal advice is required. If you can answer yes to any of the other considerations then the guarantor must seek independent legal advice.

Questions to ask yourself Indicators
Does the guarantor not understand or speak English?

If they don't speak English, a Statutory Declaration for Mortgages (002-421) must be completed by the guarantor before a qualified witness confirming they have received independent legal advice and translation of the guarantee.

Note: The broker must obtain the declaration from the guarantor and image to the application.
 

Is the guarantor unable to understand the risks and obligations of signing a guarantee?
  • Does the guarantor not understand the amount they are guaranteeing under the loan or the duration of the guarantee?

  • Does the guarantor not understand that their property could be sold to cover the guarantee if the borrower stops making repayments?

  • If a guarantor is required for servicing, do they not understand they are required to make regular loan repayments?

Note: this is only applicable to non-personal borrowers.

Is the guarantor highly dependent on the borrower?
  • Is the guarantor’s financial position dependent on the borrower’s income or assets (e.g. a husband and wife where the assets are all in the name of the wife)

  • Is the guarantor reliant on the borrower for care, particularly if they are living in the same house?
     

 

If independent legal advice is required, a Statutory Declaration for Mortgages (002-421) must be completed and imaged to the application.

 

Loan options

Customers can choose any Home Loan or Investment Home Loan product under a guarantor support arrangement. Lines of Credit are available for guarantor support arrangements other than Family Security Support.

 

Lenders Mortgage Insurance (LMI)

LMI is available for security support only where borrowers / guarantors are in one of the following types of relationship:

  • Marital
  • De facto; or
  • company and its directors

 

Loan Documentation

A Guarantor Pack will be posted directly to each guarantor. The guarantor/s must take three calendar days to review these packs before signing and returning to Group Lending Services in the reply paid envelope provided.

The guarantor/s will also be required to complete and return a Guarantor Acknowledgement Form (provided in the pack) confirming the dates they received and signed the deed of guarantee. If the guarantor has not taken at least 3 calendar days to review their documents before signing, the pack will be reissued. Guarantors will only be exempt from this 3 day rule if they are a director of the borrowing company, or if they receive independent legal advice and complete and return the statutory declaration provided in their guarantor pack

Whilst the loan is marked as "Guarantor Support" or "Guarantor Support Home Loan" , the Bank's offer documents will show the name of the loan as the name of the product selected (e.g. 1 year Guaranteed Rate Home Loan, Standard Variable Rate Investment Home Loan).

 

Interest Rates

Standard Home Loan, Investment Home Loan, Line of Credit interest rates apply.

The interest rate will depend on whether the customer’s home loan is for owner occupied or investment purposes and on the repayment type they select – principal and interest or interest only. 

 

Fees

Standard Fees and Charges apply to Guarantor Support Loans.

Please note that there is no delegation to waive establishment fees for loans under Guarantor Support arrangements involving guarantors, except for MAV customers.

 

Guarantor Fact Sheet