Mortgage guarantors play a crucial role in the property financing process, particularly for individuals who may not meet the typical borrowing criteria set by lenders. Here’s an overview of their role:
What is a Mortgage Guarantor?
A mortgage guarantor is someone who agrees to take responsibility for the mortgage payments if the primary borrower is unable to meet their obligations. This person essentially guarantees the loan, providing an extra layer of security for the lender.
Why Do You Need a Guarantor?
- Credit History: If the primary borrower has a poor credit history or insufficient credit score, a guarantor can help offset this risk for the lender.
- Income Levels: Guarantors can help borrowers who might not have a high enough income to meet the lender’s requirements.
- Deposit Shortfall: Guarantors can also assist if the borrower cannot provide a large enough deposit.
Responsibilities of a Mortgage Guarantor
- Financial Liability: If the borrower defaults on the mortgage, the guarantor is legally responsible for making the payments. This means that the guarantor’s credit score can also be affected by any missed payments.
- Legal Commitment: Guarantors need to sign a legal agreement, which outlines their responsibilities and the conditions under which they will be required to make payments.
Types of Guarantor Mortgages
- Full Guarantor: The guarantor agrees to cover the entire mortgage payment if the borrower defaults.
- Partial Guarantor: The guarantor covers a portion of the mortgage or acts as a secondary source of repayment.
- Security Guarantor: The guarantor provides a cash deposit or other assets as security for the loan, which the lender can claim if the borrower defaults.
Risks for Guarantors
- Financial Impact: Guarantors should carefully consider their financial situation, as being a guarantor can impact their own financial stability and credit score.
- Relationship Strain: Offering to be a guarantor can sometimes strain personal relationships, especially if the borrower faces difficulties repaying the loan.
Conclusion
Mortgage guarantors can be a valuable asset in securing a mortgage, especially for borrowers who might otherwise struggle to obtain one. However, it’s crucial for both the borrower and the guarantor to fully understand the implications and responsibilities involved.