Dos and Don'ts for Choosing a Mortgage Guarantor

It's common knowledge that you need a down payment to buy a property. But when applying for a mortgage, it's not just a matter of having enough money for a down payment. You have to pass a stress test. In the unlikely event that the mortgage is not approved due to insufficient income to cover the mortgage, what can the buyer do?

There are two ways to deal with the situation. You can choose to buy the property jointly with your significant other or family members, but you will lose a first-time buyer's quota. In contrast, most people would prefer the latter option in order to preserve the other party's first home ownership quota. 

There are roughly two ways to deal with it. You choose to buy a property jointly with your other half or your family, but you will lose a quota for first-time home buyers; the other way is to find a capable person as a mortgage guarantor, but if the buyer cannot repay, When the bank fails to recover money from the borrower, the responsibility for repayment will fall on the guarantor. In contrast, most people will choose the latter, to keep the other party's first place. 

Who is eligible to be a guarantor? In theory, anyone, except minors, the mentally handicapped and bankrupts, can be a guarantor, but it depends on each bank's regulations. Generally speaking, some banks only accept guarantors who are close relatives, including parents and siblings, among others. If you are applying for a guarantor for your unmarried partner, you will usually have to submit documentary proof, such as a notice of intended marriage or a formal declaration from both partners, to become a guarantor as a couple.

However, it is worth noting that for mortgages of less than 60 per cent, some banks may be a little more lenient and allow friends to act as guarantors with the bank's permission. Yet, if the loan involves mortgage insurance, the Hong Kong Mortgage Corporation requires that the guarantor must be an immediate family member or an unmarried couple. 

But life can be unpredictable. Couples might separate. So what can a mortgage guarantor do if they want to remove their name from a guarantor home loan? Firstly, the guarantor cannot quit their role by applying to the bank for guarantee cancellation; they will need the signature of the lender. 

Therefore, if there is a disagreement between the two parties and the lender is unwilling to do anything, there is no way for the guarantor to get rid of the guarantee. This is why one must think twice before acting as a guarantor. Although the role of the guarantor is relatively passive, the owner / landlord? does not have the upper hand. Without the guarantor’s consent, the owner cannot refinance, remortgage, or withdraw mortgage insurance. 

If you choose to refinance your mortgage, the bank needs to confirm that the lender can still pass the stress test after dropping the guarantee, or that there is another guarantor to take over the mortgage, otherwise the bank will not process the relevant procedures. 

After the owner provides new income proof or information which has been approved by the bank, the loan letter will be re-signed. The bank then updates the TransUnion (TU) credit records of the lender and the guarantor, and at the same time remove the guarantor's guaranteed mortgage from the TU.  

If the guarantor applies for a mortgage before the TU has been updated, the bank will take the secured mortgage into account when calculating the loan-to-income ratio. In this case, the original guarantor can provide proof to the mortgage bank, such as the repayment history of the mortgage, to facilitate the bank's approval. 

Does the guarantor need a handling fee? Some banks do require a fee, generally ranging from a few hundred to a few thousand dollars, but you can apply for exemptions or waivers. Most banks will waive the penalty if the guarantor is removed during the penalty period, and will not extend it. 

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