A mortgage guarantor is the person who provides additional security for your mortgage loan. Most lenders prefer the guarantor to be a close relative, usually a parent, grandparent or sibling. Although having a parent or family member as a guarantor is great for young borrowers, it can be risky for the guarantor. One of the main risks is that if your child is unable to repay the monthly mortgage loan, you may be responsible for at least the portion of the loan you secured.
An adult with a significant balance in their savings or equity account in their own home can become a guarantor of the mortgage of a child or adult family member. This is usually contractually limited to only 20% of the total amount borrowed. Respecting your freedom to say Yes or No, or Wait, and an appreciation that your actions will also financially affect another person while presenting themselves as a Guarantor for you, is the first step in preparing for the opportunity and increasing the responsibility that another may offer you. If you guarantee a loan for a family member or friend, you are known as the guarantor.
You are responsible for repaying the loan in full if the borrower is unable to do so. Banks usually only allow immediate family members, mostly parents, to act as guarantors. However, spouses, siblings and even grandparents could act as guarantors in particular cases. This is the most common type of collateral and is when a guarantor insures your loan against your own property.
Sometimes, a lender can also accept a second mortgage as collateral.