Definition: A guarantor is an individual who agrees to take responsibility for a borrower’s mortgage if the borrower is unable to make payments. Guarantors provide additional security to lenders, often helping the primary borrower qualify for a mortgage by bolstering the application with their financial strength.

Key points:

• Added security: Lenders view guarantors as a backup, reducing their risk since the guarantor agrees to cover missed payments or, in extreme cases, the full loan amount.
• Credit responsibility: Guarantors are equally responsible for the debt, and any missed payments can impact their credit, even if they aren’t the primary borrower.
• Requirements: Guarantors typically must meet specific income, credit, and asset criteria, as they may be required to cover mortgage payments if the primary borrower defaults.
• Non-ownership status: Guarantors don’t have ownership rights to the property, even though they are financially liable for the mortgage.

Tip: Being a guarantor is a significant financial commitment. Individuals considering this role should assess their own financial stability and ensure they’re prepared to cover payments if necessary.

Last modified: November 5, 2024