All Topics / General Property / Think carefully about going guarantor

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  • Profile photo of KevinTurnerKevinTurner
    Member
    @kevinturner
    Join Date: 2011
    Post Count: 22

    The tradition of parents going guarantor for their children’s mortgages is fraught with risk, and those who are considering doing it should think very carefully before doing so.

    While the urge to help family members get on often overrides the fears which might arise, it is important to assess risk to avoid credit problems – not to mention family tension – later in life.

    Director of MyCRA Credit Repairs Graham Doessel said if a child defaults on a loan, the guarantor’s own property becomes at risk – sabotaging many people’s hopes for a debt and mortgage-free retirement.

    “If parents have gone guarantor and their children do not make repayments, the creditor can place a default on the guarantors file which can hinder chances of obtaining credit for five years,” he said.

    “Worst case scenario, is the bank begins to use the property the guarantor put forward as collateral, to recover lost debts. There is a danger the guarantor can lose their home.”

    Currently 16 per cent of mortgage hardship claims are coming from people aged 60 and over.

    This can be avoided by being savvy to the risks and thinking carefully about individual circumstances.

    By far and away the most important question parents need to be asking is ‘could we make the repayments on this loan should our child be unable to?’ If there is any doubt of this, it may be best not to guarantee the loan.

    Other questions potential guarantors need to ask are how responsible is the borrower, how stable is their employment, whether they have other means of repaying the loan should they become unemployed or fall ill.

    If parents do decide to guarantee a loan, they should seek legal advice, insist children have life and income protection insurance, set a specific amount which would be guaranteed and ensure an end date to the guarantee period.

    It goes without saying that they should also ask for a copy of all bank statements, so as to be aware of late payments.

    Sometimes if a child has sworn blind to their parents that they can repay a loan, and then they find themselves struggling, they might not admit it straight away.

    But the fact is, if parents know that the kids are struggling they can help – however, often they don’t know until it is too late.

    We all want to help our kids out – but we need to ensure we are ok too. So dot the Is and cross the Ts. Talk to a solicitor first.

    Any guarantee you give should be treated as a business decision not an emotional one.

    Would you guarantee a loan for your children to buy a house?

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
    Join Date: 2007
    Post Count: 575

    Hi Kevin,
    Very common question:
    I think every case will be different, When i was looking for my first IP the Bank said there are two ways to get a loan, one use your parents home or save. So i saved for two years and bought a IP without using my parents home. It taught me not to be lazy and not to look for the easy way out. I think it taught me how to be responbile and work hard for things i want.

    When we bought the bussiness i needed my parents home to help with the loan, but in saying that if some thing goes wrong first they go after the shop – In most case this will cover the loan any way – 2nd my home – then last my parents.

    But i always tell my parents whats going on. We had one quiet month where i missed a repayment so i told my parents.

    But for a home to live in? Very different as your home is a liability

    cheers

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
    Email Me | Phone Me

    Your first port of call in finance :)

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    When the lender tries to call on the guarantee one option is for the guarantor to claim that they never signed the documents and their signature was forged.

    The Commonwealth Bank has failed to recover a $13.5 million loan after a court ruled former Billabong surfwear entrepreneur Matthew Perrin forged his ex-wife's signature on mortgage documents to obtain the money.

    Read more: http://www.brisbanetimes.com.au/busi…#ixzz1YPqdbn3u

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of luke86luke86
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    @luke86
    Join Date: 2010
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    Having your parents be a guarentor for a loan is one thing, but a guarentee to purchase a business is a different thing altogether. Many businesses fail within the first few years, and so having a guarentee to purchase a business is WAY more risky in my opinion. I have had a guarentee from my folks to purcahse a property, but would never ask for a guarentee for a business loan due to the high risk.

    Luke.

    Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    Hi Luke,

    Thats my point we are all different.
    If you loose your job how do you pay for the home?
    its the same risk….

    Bussiness are just as hard as homes to sell at the moment.
    My bussiness is quiet so my wife runs it and i work some where else full time.

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
    Email Me | Phone Me

    Your first port of call in finance :)

    Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    Terry W lol  i seen that head line too.

    I wonder if the owner of billbabong will get sued for jail for forgin legal documents?
    Cant he get sued for obtaining property by fincial deception or some thing like that.

    If he gets away im going to start a bussines "Skimming the bank with fake siginture"

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
    Email Me | Phone Me

    Your first port of call in finance :)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yeah, he will get charged with fraud and go to gaol probably, but his wife has just saved $13.5million dollars.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of CSQTownPlannerCSQTownPlanner
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    @csqtownplanner
    Join Date: 2011
    Post Count: 24

    Before doing it, think twice and analyse all the possible risk and even try to ensure the potential risks for the future

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