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When Your Parents Act as Mortgage Guarantor

Many financial institutions such as the Co-operative bank and the National Westminster bank offer special deals to people who have their parents or other close relations as their mortgage guarantor. The Co-operative bank offers a refund on your basic valuation when you have a guarantor. This is also subject to you using surveyors recommended by the bank. When processing a guarantor application it goes through more or less the same rigorous screening as a mortgage application.

The mortgage guarantor is normally required to be a close relative of the applicant; parents are usually looked on more favourably. The bank will also look in to their finances; this is to satisfy the bank that they have enough income to cover their new lending as well as their existing financial relationships. Not all banks expect the guarantor to guarantee the full amount of the mortgage borrowed. Some are happy with 25% of the total amount of the mortgage. This does depend widely on the individual bank as well as the mortgage applicant’s finances. It is important to remember that a mortgage guarantor has just much as responsibility as the mortgage applicant.

This kind of arrangement should only be entered in to if both parties are happy with the finer details. While having a guarantor can reduce your interest rate and allow you to afford a home that may have otherwise been out of your reach it is essentially your debt to pay back. If you fail to keep to your mortgage agreement and stop making your loan repayments, the consequences are potentially devastating for both you and your guarantor. Ownership of debt will immediately transfer to the person who "guaranteed" you would repay it, your guarantor. They will be asked to repay any outstanding amount.

If they fail to do so, not only could you lose your home but your guarantor faces losing theirs too. Having a mortgage guarantor now offers substantial benefits and if done correctly, it can work out to be a beneficial experience. However, great thought should be put in to the arrangement before either party makes a decision. In addition, maybe most importantly, the applicant should be certain they could comfortably meet the repayments.

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