Protecting The Guarantor
It is a huge obligation when you support someone else’s loan. It is, therefore, necessary to minimize the risk of the guarantor. Our priorities revolve around responsible lending practices and shall not offer any assistance to a borrower when there is a high chance the assets of the guarantor will be put to risk.
How responsible is the borrower?
Guarantors are always close family members to the borrower. Should they have worries about the financial stability or the responsibility of the borrower, it is then not recommended that they enter the contract. When the borrower has a steady employment, finances, and relationships, the risk of the guarantor is reduced tremendously.
Insurance / financial buffer
It is recommended the borrower have one of the below-mentioned insurance types to limit the guarantor risk in case an unforeseen circumstance occur.
- Life Insurance
- Permanent and Total Disability Insurance
- Income Protection Insurance
- Loan Protection Insurance
We recommend the borrowers aim to keep a sum of $1000 as a redraw in their loan account. This will provide help to emergencies or any unexpected expenses that may occur. Having an insurance cover and standby funds will take care of any problem that may arise lifting the burden off the guarantor and the borrower.
One of the major reasons why individuals default on their home loans is due to excessive consumer debt. After purchasing a home, some people go further to take new loans which result to them being unable to meet their mortgage requirements. When you buy a home, extra effort should me made towards your loan repayments. This can be done by:
Allocating a decent amount towards your mortgage
Not taking any other loan until the guarantee is removed
Reducing credit card limits
Not paying or spending money on credit
It is advisable you prioritize your financial commitments to escape future complications in this case defaulting on your loan.
What do you do when things do not go as planned? We recommend you consider talking to your lender to find a solution. Some of the lenders provide help and selling the property is a last resort. In case you cannot repay the loan, it is advisable you move to a smaller property or you can move in with your family. If that does not work, you may consider selling some of your assets such as shares or cars. You can also access the superannuation funds to provide additional money towards the loan. However, this can only be used when experiencing financial hardships. Sell your property as a last resort without risking the guarantor’s property to repay your loan. You can put your property to be sold on the market instead of waiting for the bank. This is because the bank may force the sale and there may be no money left after your loan is paid.
Get legal advice
It is highly recommended that the guarantors seek legal advice when entering into the agreement. Most lenders set this as a condition before advancing the loan. It is also important for the guarantors to know the consequences involved when the borrower defaults.