Guarantors...what are they? how do they work? what are the negatives and positives and are there better solutions out there? Matthew Dawe Mortgage Broker and Financial Adviser here and I'm going to show you an alternative to using a guarantor.

So what is a guarantor? A guarantor is another person who goes on the loan application with you to help you purchase a home. Let me give you a short example: Let's just say you have a parent who has a property, they can actually offer that property as security or collateral on the loan - go on the loan with you so it means that you have to come up with a lower or less deposit to purchase a home.

Well Matt that sounds fantastic but what are the downsides? There are three big downsides. The first one is because some of the lending in this example will be against the parents home this means parents will have to go on the mortgage application with you. Parents are going to have to show that they can comfortably afford the guarantee or guarantor portion of the loan secured against their home if it was ever called upon for any reason.

Now that means that parents are going to have to show that they can afford all their living expenses, any existing mortgage payments plus the new mortgage or the new guarantee portion of the loan. If parents are not working or if they're elderly or retired at guarantor situation does not work.

And the second negative is a big downside. Let's say in this example that something went wrong and the son or daughter didn't repay or failed to repay, parents are actually on the hook for that guarantor portion which means their family home is at risk and a lawyer will make you well aware of that risk.

And the third big downside is even if you think that could work for you, the son or daughter' is still going to have to show that they can comfortably afford the entire loan including the guarantor portion so in this example the loan is not going to be bigger than if the son or daughter was applying by themselves, the only benefit is potentially a lower or smaller deposit.

So is there a better solution Matthew? and the answer is absolutely yes. Quite often we are dealing with guarantor situations but quite often it's easier and less risk if parents are willing to help then potentially they could gift some money to the son or daughter which means that their family home is not at risk, they're also not having to go through a full loan application and this directly helps the son or daughter because they're able to still borrow the money. Everything is completely separate.

The second better option is that you could have a private agreement between parents and son or daughter that means that the money initially is a gift however that potentially at some future point the money could be repaid and that works the exact same way again the family home is not on the hook - the parents home and they're not having to go on a mortgage application.

So I hope that's been helpful, when you're ready there are three ways we can help you:

1) I'm offering free strategy session consultations where you can talk about your situation and discuss next steps. You just go to our website www.matthewdawe.com click on the top right hand side where it says ''Contact/Book'' page and you can book a free Phone call/ Zoom or In-person meeting at a time that suits you.

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3) And if you know anybody that would benefit from this video help them out and please forward this to them. Thanks so much for watching.

Matthew Dawe

Mortgage Broker | Financial Adviser

Phone: 027 321 4287

Email: mortgages@matthewdawe.com

Facebook: https://www.facebook.com/AucklandMortgageAdviser

Book a free consultation: https://www.matthewdawe.com/contact