Mortgage Matters

4 mortgagematters

When you guarantee a loan, ask WHY!

I thought I’d carry on from last month’s topic around guaranteeing a loan.

I come across a number of clients who have guaranteed a home loan – but don’t really know why. All they know is that their relative or friend could not get the loan by themselves; so, what the hell, “let’s put my name down”.

With home loans, there are three basic situations where a guarantee may be required:

1) The applicant does not have enough deposit to buy the home. With the tighter restrictions around low-deposit home loans, a number of first home buyers are experiencing this at the moment.

2) In the eyes of the lender, the applicant does not have enough income to support the loan repayments. This can arise when an applicant has just started a business and does not have a full set of accounts; or maybe they have a fixed-term employment contract. You would want to know exactly what is missing in the application, to allow your guarantee to be released. Develop a plan and a timeframe to fill this gap. This is vital, as there is a risk you could be drawn into the ups and downs of someone else’s line of business.

3) The applicant does not have enough deposit and income to get the home loan (a mix of the above). This type of situation requires a very careful approach, as the risks are potentially higher for both the applicant and the guarantor

In the following months, I will cover off some of the mortgage tips around removing a guarantee.

I believe we all have an obligation to look out for each other; so, if in any doubt, please seek professional or legal advice before entering a loan or guaranteeing arrangement.

For further details, feel free to contact Ivan on 09 427 5870 or 0275 775 995 or email ivan@ivanurlich.co.nz

Ivan Urlich is a registered financial adviser, specialising in mortgages. His disclosure statement is available free of charge on request.