A borrower seeking a mortgage who is faced with potential denial by a lender has to act fast. They know that there is probably a good reason why the lender plans to turn them down. Maybe it’s their less-than-satisfactory credit rating. Whatever the reason, the borrower needs to come up with a solution, and quickly.
Maybe getting a co-signer would help them. They know a person who has good credit; perhaps they can convince the lender to approve their application. However, a co-signer is not perfect. Their name is on the loan contract, which means that they have a legal right to the borrower’s property should they fail to make the payments.
How do they convince the lender to advance the loan to them without exposing themselves to such liability? The answer is to find a guarantor for their mortgage. A mortgage guarantor does not have their name on the loan contract, so they have no right to their property. The guarantor assures the lender that they will take the responsibility of making the mortgage payments if the borrower defaults.
This is a huge financial burden for the guarantor to take on. Not only do the terms of their obligation extend for up to three or four years, but during that time the guarantor is prohibited from taking out any loans of their own. The guarantor cannot take out an investment property mortgage, car loan or education loan.
In addition, if the borrower defaults, the guarantor will never get their property. The guarantor is left with all the downsides to paying the mortgage with none of the benefits. Obviously the guarantor needs to have a close relationship with the borrower to even consider something like this, which is why guarantors typically come from the borrowers own family.
Guarantors shoulder a large burden, but if they choose the right borrower, they will be free of it in a few years instead of fifteen or thirty.
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