The Banco de España defines a guarantee as “a contract in which a natural or legal person guarantees or ensures compliance with obligations, undertaking to pay another person's debt if that person does not pay it”. In other words, a guarantee is a commitment to pay a person's debt if that person does not meet their payment obligations.
What purpose does a mortgage guarantee serve?
When someone applies for a mortgage, the bank may consider that their assets, financial circumstances and payment capacity or credit history are insufficient to lend the money.
Mortgage guarantors are liable with their own assets in the event of non-payment of the debt by the borrower. The bank can claim the debt from the guarantor who must pay the debt from their present and future assets. The bank must demonstrate that the borrower cannot make the mortgage payments before it can claim the outstanding payments from the guarantor.
Who can guarantee a mortgage?
Entities require the same payment capacity from guarantors as they do from borrowers. This means they must meet the following requirements:
- Aged 18 or over.
- Stable and sufficient income.
- Sufficient assets to provide a guarantee for the financial institution. This means that the assets must be free of all charges, i.e. property that is paid for.
- A good credit record.
- No outstanding debts.
The mortgage guarantor will be tied to the borrower throughout the life of the mortgage. The guarantor must therefore thoroughly understand the clauses and conditions of the mortgage, as they may become liable for them.