Useful Tips

Guarantors on loans

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.

Definition
A guarantor promises to make the payments or reimburse any shortfall in the event that the original borrower does not pay and/or the property is sold at a loss.

A Servicing or Income guarantor provides their income to assist the loan borrower to make the loan repayments. This is sometimes available for direct family members (eg. Parents for children) but is normally used for spouses or directors guaranteeing their company’s loan.

A Security guarantor provides an additional property to the one being purchased, and the lender will use this for additional security for the loan.

Benefits
With more income available the property purchasing power of the borrower is increased.
With more security property available, the borrower can potentially borrow the whole purchase price plus costs.
With more security property available, the borrower can avoid costly Lenders Mortgage Insurance premiums.
Disadvantages
Guarantors will be liable for the loan repayments in the event that the loan borrower does meet their obligations.
If the property is sold by the mortgagor and there is still some money owing, then the guarantor will be liable to repay that amount too.
Not all lenders have guarantee options available.

Things to consider
Guarantors should consider obtaining their own separate legal advice as to the implications of providing a guarantee.
The guarantor has what is called a right of subrogation which means that after he has paid the lender he can claim any payments made from the borrower or against the property if there is any equity left after the loan is paid out