Getting a loan from bank in order to carry out some work or make a big purchase is a common deal these days. But before giving the loan the bank makes sure that the borrower has a good credit so that he can repay the loan with interest. They first make it sure if the borrower is having that financial condition or not. If not, they deny for lending the loan. In such case the borrower is either to mortgage his property that he owns to get the loan or else he must present a guarantor to the loan. Now, any random person cannot be a guarantor. If a person is a guarantor to a loan it means that if by chance the borrower for some reason fails to repay the loan then the guarantor will repay instead. Therefore, before taking any person as a guarantor the bank scrutinizes his financial condition as well. They make it sure if the guarantor is having that financial condition or not. Guarantor home loans are one of the ways of showing the bank that the guarantor has property enough to repay the loan. A guarantor home loan is when any other person, such as the guarantor, puts up a property they own, or have a share, in as the security. This allows the borrower to borrow upto 107% of the purchase price of a home without any need of deposit.
If the guarantor has enough of credit in their bank then they may not be required to give any property as security. However, this term depends from bank to bank. There are other ways also by which the borrower can take loan without the need of any guarantor. There is a provision for “Mortgage” and “Mortgage Insurance”. Mortgage Insurance, also known as mortgage guarantee, is an insurance policy that compensates for the losses of the lenders of loans to the failure of payment of mortgage loans.
Guarantor home loan saves the borrower from paying thousands of bucks for mortgage insurance. However, it becomes a bit risky for the guarantors. Therefore the guarantors must stay cautious on their part. Before they officially become the guarantor they must, for their own safety, make it sure if at all the person originally borrowing the loan is in the position to repay the loan or not. They must get the details regarding the borrower’s credit history or other finance related stuffs. They must always keep it in mind that once they become a guarantor they automatically become the co-signor of the contract. They must not forget that if in case the borrower fails to repay the loan then they will have to pay it. Since they have put up their own property for security, bank may demand that property for the repayment of loan, or ask to mortgage that property to the bank. It’s good to help a family or friend, but not at the cost of own safety.
While taking this loan, the borrower must also make it sure beforehand if they can pay back the loan with interest within the given period of time or not. It is vital to do this because if by any chance they fail to pay off the total sum of money (Principal amount + interest) then their guarantor will have to pay the entire sum as they were the guarantees based on whom the loan was given. This might create real trouble for them as they have put up their own property as security. Therefore to avoid all these mess and to save the guarantor from the troubles the borrower must stay cautious at his part.