Acting as guarantor for a mortgage loan to enable a loved one to obtain credit to buy the house of their dreams is a noble commitment, but the scope of it must be carefully measured beforehand.
Indeed, acting as guarantor means agreeing to honor the borrower’s debts to the credit organization in the event of inability to pay.
As guarantor of the total repayment of the loan, the one who acts as guarantor at the same time commits his property if the subscriber of the real estate loan obtained cannot, for any reason, pay off his loan.
How it works ?
The bond is governed by article 1123 of the Civil Code. It is, in principle, established by means of an act signed between the person acting as guarantor and the bank itself. It is important that the guarantor and his responsibilities appear clearly in the annex or in the loan contract.
In certain cases, using the services of a notary can be useful. This professional is able to draw up the guarantee document and is able to make the guarantor aware of the extent of his commitment. At the end of the transaction, each party receives a copy of the document carried out.
Becoming a guarantor for a mortgage loan is not a decision to take lightly. The consequences can be serious since, just like the borrower, the guarantor puts his own assets and income at stake.
Simple or joint deposit?
It is important to differentiate between a simple and joint guarantee before committing. The simple guarantee is characterized by the fact that the borrower remains primarily responsible in the event of non-repayment of his debts. In this case, the bank must contact the borrower before requesting the intervention of its guarantor.
When the guarantor is qualified as joint, this means that the guarantor has made a joint and several commitment to the loan and the bank can therefore approach both the borrower and his guarantor. Although the simple guarantee protects the person acting as guarantor from possible abuse, you should know that banks can require a joint guarantee when taking out a loan.
The commitments of the credit organization
As part of a mortgage loan guarantee, banks and other credit institutions also have legal obligations. The guarantor must specify his commitment through a handwritten note on the contract.
It is also up to the credit institution to keep the guarantor informed of all the important details concerning the credit and to inform him of the progress of the reimbursement or of any payment incident, if applicable.
