What rights and responsibilities does a mortgage guarantor have?

Homebuyers may find lenders agreeing to lend them a larger amount or offering better terms if someone is willing to guarantee the loan. Typically, younger people buying their first home could ask one or both of their parents to act as guarantors. However, signing on to someone else’s home loan as a guarantor comes with responsibility and associated risks, while there are practically no rewards on offer. 

For this reason, prospective guarantors need to be thorough in checking what they are getting into and fully consider the impact of the loan on their financial well-being before agreeing to become a guarantor. 

What are a home loan guarantor’s responsibilities?

A mortgage guarantor is responsible for ensuring that the home loan is paid in full, along with any fees or charges, if the borrower cannot make repayments - within the loan period if possible. Missing repayment deadlines can affect both the borrower’s and the guarantor’s credit history. 

In situations where the lender has asked the guarantor to offer their home as security, defaulting on the loan could lead to the guarantor’s own home facing foreclosure as well. As the lender may only reach out to the guarantor if the borrower cannot be contacted, the guarantor may want to check in with the borrower on their progress in repaying the home loan from time to time.

A borrower may want to discuss their the home loan with the guarantor before applying for it and inform the guarantor about the loan terms before it is approved. Giving the guarantor a copy of the loan agreement and the repayment schedule, along with the borrower’s financial documents, can help the guarantor better understand the specifics of their responsibility. 

Further, both the borrower and the guarantor may want to ask the lender about their repayment policies and the procedures followed if any payments are missed. Coming up with an alternative repayment plan can give the guarantor time to set aside savings if they need to take on the liability.

What are the mortgage guarantor’s rights?

Home loan guarantors may need to draw up an agreement to specify their rights, which may be limited to the amount of liability they are willing to bear. If they’ve agreed to be a guarantor without specifying any limits, they can’t refuse to repay the loan balance if asked to do so by the lender. 

For instance, a guarantor may agree to back the home loan up to a certain fixed amount, with the borrower liable for the balance. Ideally, this would have to be endorsed by the lender so that they are aware of the arrangement. A formal agreement between the borrower and the guarantor can save the guarantor from having to defend their rights in a court of law if the borrower fails to repay the loan.

The guarantor may also have the right to be released from the loan agreement once the borrower has repaid a specified percentage. This condition should be specified in the loan agreement, with the lender also mentioning how the loan terms may be affected. 

Further, suppose the guarantor has not received any loan-related information from the borrower. In that case, they can approach the lender at any time and request a statement of the loan status, outstanding balance, etc. Guarantors should also check with lenders about their rights in situations where the borrower has not disclosed changes in their circumstances that could affect their ability to repay the loan.

Before becoming a guarantor or applying for a home loan with the help of a guarantor, it's important to consider seeking personal advice from experts, such as a legal professional and/or a mortgage broker, to ensure that all parties are aware of their rights and responisiblities and to confirm that this is the best choice for everyone's financial situations.

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