Floris ten Nijenhuis
Should my parents guarantee my mortgage?
When your parents guarantee your mortgage, they are essentially stepping in to say that they will pay up in case you can't make your mortgage payments.
In practice, this means they will likely have to put their own home up as collateral, or they might have to deposit a large sum of money into an account with the bank that is lending you the money.
What’s good about a guarantor mortgage
Not all of us can count ourselves fortunate enough to have a close family member who owns a property or has enough savings to be our guarantor. But even if we did, it is a big risk for them to agree to be your guarantor.
If they do, this can help in the situation where you might have a small deposit or bad credit history. This is because a bank is less worried about you not meeting your payment obligations and will therefore lend you more or at cheaper rates potentially.
What to watch out for
This is clearly quite a risky strategy, as if something goes really wrong, you could lose your home or your parents could lose theirs. That's the worst case scenario. More likely, they might have to step in a couple of times and make a payment if you've had a bad month.
Similar to the question of Is it a good idea to buy a house with someone?, you need to be careful when mixing family or friends with money. Things can and do go wrong more often than we like to think. So again, seek independent legal and financial advice to make sure you and your guarantor know what you’re getting yourselves into.
Want to read about other alternatives to buying a home with a mortgage? You can find out more here