Indeed, acting as a guarantor means agreeing to honor the borrower’s debts to the credit institution in case of payment incapacity.
As the guarantor of the full repayment of the loan, the person acting as guarantor also commits their assets if the subscriber of the obtained mortgage loan cannot, for any reason, fulfill their loan obligations.
How does it work?
The guarantee is governed by Article 1123 of the Civil Code. It is, in principle, established through a deed signed between the person acting as guarantor and the bank itself. It is important that the guarantee and its responsibilities are clearly outlined in an annex or in the loan contract.
In some cases, the services of a notary may be useful. This professional is capable of establishing the guarantee deed and can make the guarantor aware of the extent of their commitment. At the end of the transaction, each party receives a copy of the completed deed.
Acting as a guarantor for a mortgage loan is not a decision to be taken lightly. The consequences can be severe since, just like the borrower, the guarantor puts their own assets and income at risk.
Simple or joint guarantee?
Distinguishing between a simple and joint guarantee is important before committing. A simple guarantee is characterized by the fact that the borrower remains primarily responsible in case of non-repayment of their debts. In this case, the bank must turn to the borrower before seeking the intervention of their guarantor.
When the guarantee is described as joint, it means that the guarantor has committed jointly to the loan, and the bank can therefore address either the borrower or their guarantor. Although a simple guarantee protects the person acting as guarantor from potential abuse, it should be noted that banks may require a joint guarantee when taking out a loan.
The commitments of the credit institution
In the context of a mortgage loan guarantee, banks and other credit institutions also have legal obligations. The guarantor must specify their commitment with a handwritten note on the contract.
Furthermore, it is the responsibility of the credit institution to keep the guarantor informed of all important details concerning the credit and to inform them of the progress of the repayment or any payment incidents, if applicable.