A bank guarantee. Definition and when to apply for it to purchase a property
When applying for a mortgage, sometimes a bank considers that the necessary conditions to grant it are not met. A bank guarantee is an option to take into account. In this case, there are alternatives that can help to obtain the credit and buy the property we want. Please let us explain in detail below.
Banco de España itself is very clear when defining what a bank guarantee is, “A guarantee is a type of contract whereby an individual or legal entity undertakes to meet the guaranteed party’s obligations to a third party if the guaranteed party (obligor) fails to do so”.
That is, an individual will have to take over the payments of another person if he fails to pay the corresponding installments on a mortgage.
When to use a bank guarantee?
As mentioned at the beginning, it may happen that the necessary requirements for a bank to grant a loan are not met. After carefully analyzing the documentation which is submitted when applying for the loan, the entity may consider that the current equity, economic conditions, payment history or the ability to be able to face the debt are not sufficient guarantees to be able to lend the amount of money that is being asked for.
It is in these cases when there is the possibility of including a mortgage guarantor whose function will be to respond with the current and future assets in the event of non-payment by the mortgage holder. Obviously, before resorting to this extreme, the bank makes sure that the person actually does not have the money to overcome tha payments of the loan that he has signed.
Who can be a guarantor of a mortgage?
When a bank guarantee is needed to obtain the necessary credit to buy a property, the person who assumes the function of guarantor must comply with very strict conditions,
- Must on legal age
- Have a stable and sufficient source of income
- Have assets free of charges that serve as sufficient guarantee for the bank
- Not be on any list of defaulters
- Be up to date with pending accounts
It is essential that the mortgage guarantor knows all about the mortgage loan because he will be linked to the person who owns the mortgage for the duration of the loan payment.
Aspects to consider when having a mortgage guarantee
In fact, a mortgage guarantee helps to get the credit that has been requested from the bank to acquire a property, but the person who acts as guarantor should know in detail what it entails. In addition to knowing that you have to respond financially in the event that the loan holder defaults, it is important to inform them that there are ways to minimize risks. There is always the possibility of negotiating with the bank the limitation of liability or agreeing that the guarantee disappears when the debt goes down and reaches a specific amount. It is also important that the mortgage guarantor knows that there is the possibility of dation in payment. It is a method for the payment of debts that allows to deliver some capital to meet pending financial charges.
Is a mortgage guarantee the same as a mortgage guarantee?
Although they are quite similar concepts, they differ fundamentally. A guarantee is a type of payment guarantee for the bank, but when a bank requests a guarantee, the person can respond with their own assets (with another property, the car, etc.) Instead, in the guarantee of a loan third parties enter who respond to us if there is a non-payment.
Other alternatives to the mortgage guarantee
Before requesting for a secured mortgage, it is advisable to consider other options for buying a property. One of the most interesting and that can be a quite viable alternative is to take out payment protection insurance. It is a policy that guarantees an amount equivalent to the monthly payment of the mortgage loan in the event of an accident or unemployment. With this product, the bank is likely to grant the mortgage without collateral. The best thing in these cases is to go directly to a bank to explain in detail all the options in case of any problems when contracting a mortgage. And if you are considering the possibility of taking out a mortgage, remember that at Hermes & Mathew we have the best portfolio of apartments for sale in Barcelona. Please contact us and we will be delighted to inform you.