When we ask for a mortgage to buy a house, the bank may ask us to fulfill some requirements as a guarantee of payment of the loan. One of the most common is to present a mortgage guarantee in Sky Marketing.
However, becoming someone else’s guarantor has some risks. Therefore, before making a decision, it is advisable to be clear about what a mortgage guarantee is, what it means to sign a contract with a guarantee and what responsibilities a guarantor assumes in case of non-payment of the mortgage.
Frequently asked questions about the mortgage guarantee
What is a mortgage guarantee and how does it work?
Generally speaking, a guarantor is a person or a high-value asset that serves as a guarantee of payment before a bank.
This formula is very widespread in the granting of mortgage loans for the acquisition of a first home, being accepted, both by traditional banks and by other types of credit institutions regulated by the Bank of Spain, when the applicant for a mortgage does not have of sufficient resources or assets to be considered a “risk-free” option.
Once the guarantee contract is signed, the guarantor will respond when the mortgaged person has no possibility or equity to pay his mortgage, with his payroll, properties and / or present or future assets depending on whether the guarantee of the guarantee is personal or real.
From the verification of the insolvency situation of the mortgage holder, the guarantor will have to pay all the installments, pending, present and successive, until the mortgaged person can meet his monthly payments or until the end of the mortgage contract.
What is the difference between a collateral and a mortgage guarantee?
Guarantee and mortgage guarantee are similar concepts, although there is a big difference between them.
Obviously, a surety is a type of guarantee of payment. However, when a bank asks you for a guarantee, you can put your assets to respond to the entity (for example, if you cannot pay the mortgage, the bank keeps another property of yours, with your car, etc.).
On the other hand, third parties who answer for you before the financial institution in case of non-payment come into play in the guarantee.
When is it mandatory to have a guarantor to apply for a mortgage?
Not all loans require a mortgage guarantee. In this sense, each bank has its own policy, although there are certain situations in which it is common for the bank to request a guarantor.
Some examples are:
- The buyer cannot demonstrate that he has a regular income (in the case of self-employed professionals, people who are unemployed or who have permanent contracts) or financial solvency.
- The buyer wants to request financing of more than 80% of the property’s value. When a person asks the bank to cover more than 80% of the appraised value of a property, it means (generally) that they do not have enough savings and, therefore, the bank can request a guarantee as a guarantee of payment before granting the mortgage.
- The monthly mortgage payment exceeds 30-40% of the mortgage holder’s income. In these cases, the effort rate is considered “too high”, and the holder may not be able to meet the monthly payments.
- The buyer is very old. Banks also usually ask for a mortgage guarantee when it is estimated that, at the time of completion of the mortgage payment, the owner of the mortgage will be over 75 years old.
- There are precedents for default.
In many of these cases, the entity may not even grant the loan, although a favorable negotiation is always more likely if a collateral is presented.
Who can be the guarantor of a mortgage loan?
The main requirement to be a guarantor in a mortgage loan is to have financial solvency and regular / continuous income to meet the mortgage payments if necessary.
In addition, the guarantor must prove financial solvency and have a good credit history.
What is a temporary mortgage guarantee?
In principle, the guarantor is linked to the holder of the mortgage for the life of the mortgage or until the debtor pays his debt with the bank.
The guarantee contracts must include data such as the identification of the guaranteed person, the creditor beneficiary and the guarantor, the duration of the guarantee, the enforceability of the guarantee, the guarantee and performance requirements, the possible cancellation conditions or the commissions and expenses. to be paid by the guarantor if necessary. Even so, as they are private contracts, other clauses can be added.
There is also a modality of temporary or partial guarantee. In this case, both parties agree that, as soon as a percentage of the mortgage is paid, the figure of the guarantor disappears. Normally, the partial guarantee is stipulated on 80% of the loan.
How do you remove a mortgage guarantee? What steps should I take?
Many of our clients ask us how to withdraw a mortgage guarantee, for example in case of divorce or when our financial situation or that of our guarantor has drastically changed.
The options for removing a mortgage guarantor are:
- Negotiate the elimination of guarantors directly with the bank. Although, generally, the bank will refuse to remove this payment guarantee.
- Declare the guarantee null. This option can only be considered if in the drafting of the guarantee contract the damage towards the guarantor is evident, if the document was signed by imposition of the bank or if abusive clauses are included. It will be necessary to demonstrate that there was no prior negotiation, that information was lacking or that the guarantee represents a disproportionate payment guarantee.
- Subrogate the mortgage. The subrogation of the mortgage implies signing new conditions, and it is possible to change the holders of the same, improve their interests and add or remove guarantors.
- Propose a change of guarantor. In this way, payment guarantees are maintained and only this name of the guarantee contract is changed. Previously, the bank will check the financial and financial solvency and the credit history of the new guarantor.
Main alternatives to the mortgage guarantee
Signing a loan with a mortgage guarantee can have serious consequences, since in case of default, another person must assume our debt with the bank. Therefore, before requesting a secured mortgage, it is advisable to consider other options for buying a home.
One of the most interesting is to take out payment protection insurance. With this product, it is very likely that the bank will grant us the mortgage without collateral, although the final price of the house will become significantly more expensive.
Another option is to choose a house from the bank. In this case, the conditions for obtaining a mortgage are usually much more flexible, and the guarantee is almost never necessary.
The rent to own is another alternative to buy a home without filing a mortgage guarantee with Tajarat properties.