Understanding Guarantors

What's a guarantor

A guarantor on a mortgage is a person who provides equity in their own property to fund the deposit required for another persons property

Most guarantors are a close relative, usually a parent, grandparent or sibling

A guarantor assumes financial responsibility for servicing the repayments or cover the outstanding loan amount, if the borrower defaults on the repayments

How does a guarantor work

Both borrower and guarantor need to understand the risks involved in order to make an informed decision

Guarantors should consider:

Responsibility for paying back the entire loan if the borrower can’t
May struggle to borrow in the future if the loan goes into default and isn’t payed back
Could affect your relationship with the borrower and wider family members
If the borrowers relationship breaks down, leaving the guarantor in a vulnerable position

The guarantor should seek independent financial and legal advice, it’s a common requirement of banks or lenders for potential guarantors

The guarantor must have a good credit score
Have sufficient equity in their property to be used as security
Stable employment

How long does a guarantor stay on a loan?

The guarantor will remain on the loan until the security amount is repaid or
The property increases in value to remove the security (refinancing the loan)

Then have a discussion with your lender about releasing the guarantee security.

The other option is refinancing with another lender who does not require the guarantee

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