Guarantor mortgages are there to help you when you may not be able to get a mortgage in your current circumstances. They can help to secure a mortgage if a mortgage provider doesn't accept you. If you can't buy the home you want with a regular mortgage, a guarantor could help you to borrow more. If you can't secure a mortgage, a bank may approve your mortgage application if you have a guarantor. A guarantor is someone named on your mortgage. They will have the responsibility of covering your funds if you can't.
Usually a guarantor mortgage where a related or close family member takes some of the risk of the mortgage. This may involve the guarantor offering collateral such as their home or savings. The guarantor agrees to cover the mortgage shouldn't you be able to. You are likely to get a mortgage you wouldn't have been able to get without a guarantor. You will also be able to borrow more or be able to take mortages with lower interests rates. However, the guarantor will be liable for the mortgage.
You will use another persons home or possesions as security. The mortgage provider has the opportunity to reposses the guarantors property. The lender can sell the guarantors possesions repayments aren't met. This reduces the lenders risk.
The guarantor will not own any of the property, nor will the have any titles. The guarantor will only own a part of the property if it is agreed upon in a seperate contract. The guarantor forms part of a legal agreement, to cover the mortgage payments. It is common for the gurantor to offer one of the following to the lender as guarantee.
Their property or own home. The lender can be obligated to reposses the guarantors property.
Their savings. The guarantor may put a non withdrawable deposit in to an account. They can only withdraw the deposit once an agreed amount of the mortgage has been paid.
The guarantor adds their name to the mortgage. They wont own any of the property or hold a title of the property. Some guarantor mortgages use savings. The guarantor puts a deposit in to an account, to used as collateral against the mortgage. The lender will take money from this account if they can no longer pay the mortgage. This account can still accumulate interest. Once they pay an agreed amount to the mortgage they will be able to access this acount. Another option is to make deposits in to a direct account. The direct account will cover the mortgage if any payments or missed.
You might be considering a guarantor if you have low income, small deposit or bad credit.
Who can be a guarantor?
Some mortgage lenders will only allow a close family member to be a guarantor. Some lenders will only allow guarantors who have fulfilled their own mortgage. Other lenders will only accept guarntors who can offer 50% of the mortgage in collateral. If the guarantor has a mortgage they may have to prove they have a high enough income to pay both mortgages. If the guarantor has retired they may need to prove they are able to make the repayments. The lender may also run a credit check on the guarantor.
The lender will agree at what point a guarantor can leave the mortgage. You should pay a set percent of the mortgage set by the lender before withdrawing the guarantor. The guarantor will have to withdrawn before they can enter another guarantor mortgage. The lender can extend the period that the guarantor stays on the mortgage if you miss payments.
Is the guarantor 100% responsible for the mortgage?
The guarntor will only be responsible for covering a set amount in some agreements. Some lenders will allow the borrower 100%, but the guarantor is only responsible for a lower percent. In this situation the guarantor will only have to cover upto what they have agreed. If the borrow can meet the repayments then the guarantor does not need to do anything.
If the borrower can't make payments the lender may reposses the house. If the house does not cover the original mortgage, the guarantor may have to cover the difference.
Can a gauarantor be taken off the mortgage?
If the borrower has paid an agreed amount of the mortgage then the lender can remove the guarantor. If the borrowers financial situation improves, they may ask the lender to alter the terms.
There are some factors to consider when applying for a guarantor mortgage. For more information see - what to consider when looking for a guarantor mortgage.