Essential information for guarantors
Being a mortgage guarantor means that you have agreed to support the mortgage application of a person, usually a child, close friend or family member, who would otherwise be unable to get a foothold on the property ladder because of an insufficient deposit, low income or unfavourable credit rating.
In this situation your help can make a real difference as, by taking on the risk yourself, you have the potential to enable a first-time buyer to pursue their home owning dreams, and often at a better rate of interest than any of the alternatives.
However, guarantors do take on the risk of the mortgage, so it is essential that you are fully informed of all the terms, conditions and possible consequences when helping your friend or family member to achieve home ownership.
The following information is important if you:
- Intend to act as a guarantor for a mortgage for another person
- Intend to offer your property as collateral security for a mortgage for another person
The Cambridge recommends that you take independent legal advice before entering into an agreement to make sure you understand the full implications of your commitment as well as the potential consequences of your decision.
You should not agree to act as a guarantor unless you are able to meet the payments for the borrower’s mortgage after you have satisfied your own budgetary needs. A mortgage is a long-term debt so you must also consider what commitments you might undertake in the future and how they may be affected by the guarantee which you will be giving.
Acting as a guarantor
Becoming a guarantor means you could have a life-changing effect for the person or family you are helping to get a mortgage. However, it is crucial that you understand the full implications of acting in this capacity before you make any lasting commitment:
- Should the borrower whose mortgage payments you are guaranteeing default on all, or part, of his or her payments, you will be required to make the payments to The Cambridge. Failure to make payments when required could result in legal action being taken against you
- The guarantee which you give will be for the duration of the mortgage. The Cambridge may, however, be prepared to release you from your guarantee if it is satisfied that the borrower is able to sustain payments without your support
- The Cambridge will assess your suitability to act as a guarantor by reviewing your financial circumstances. You will be required to give The Cambridge permission to seek any references which it may require and to search the files of any credit reference agency which will keep a record of that search
- Entering an arrangement by which you are committing yourself to repayment of a debt needs your careful consideration
Offering property as collateral security
If you choose to offer your own property as collateral security against a mortgage for another person, you should understand the full potential implications of this:
- The Cambridge will take a first charge on the security offered
- In the event of default by the borrower, any loss incurred by The Cambridge can be recovered by calling on the collateral security. In the case of property, The Cambridge can take legal action to obtain possession of your property and sell it to recover the money it is owed. THIS MEANS THAT YOUR PROPERTY, WHICH MAY BE YOUR HOME, IS AT RISK
- Your ability to sell your property will be restricted by a collateral charge
Release of collateral security obligations
The Cambridge may agree to release collateral security if:
1. the value of the borrower’s property has increased to an amount at which The Cambridge is satisfied that it will provide adequate security for the amount of the mortgage, or
2. the mortgage is reduced to an amount for which the value of the principal property provides adequate security, or
3. suitable, alternative collateral security is offered, or
4. the loan is surrendered.
Fees are a necessary part of the mortgage application process. Any valuation, legal or other fees incurred by The Cambridge for the acceptance and assessment of a guarantor or collateral security will be the responsibility of the principal borrower, the guarantor or the owner of the collateral security.
Limit of guarantee
The amount of the guarantee, provided by a guarantor or by collateral security, will be limited to the amount of the advance, any unpaid interest and costs incurred as a result of possession proceedings. An unlimited guarantee will not be taken.
The guarantor's gift of home ownership
Let's not forget that being a guarantor can make significant difference to a person who may otherwise find getting a mortgage is just not possible. While it's a serious undertaking for the guarantor, it can mean the difference between a lifetime of rent payments and being able to leave a legacy to future generations.
Talk to the Cambridge today if you are considering becoming a mortgage guarantor.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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