The dangers of guaranteeing a mortgage for your children
The dangers of guaranteeing a mortgage for your children
Guaranteeing a mortgage for your children is a big decision, and it's important to weigh the risks and rewards carefully before you say yes. On the one hand, it can be a great way to help your children get into the property market, especially if they're struggling to save a deposit. On the other hand, it's important to remember that you're personally liable for the loan if they can't repay it.
Here are some of the dangers of guaranteeing a mortgage for your children:
You could lose your own home. If your children default on the loan, you could be forced to sell your own home to repay the debt. This could be a financial disaster, especially if you're retired or approaching retirement.
Your credit rating could be damaged. If you have to default on the loan, it will damage your credit rating. This could make it difficult for you to borrow money in the future, even for essential things like a car loan or home renovation.
You could strain your relationship with your children. If things go wrong, it could put a strain on your relationship with your children. They may feel guilty for putting you in this position, and you may feel resentful that they've put you at financial risk.
It's important to talk to your children about the risks and rewards of guaranteeing a mortgage for them before you make a decision. If you do decide to go ahead with it, it's important to get legal advice and make sure you understand the terms and conditions of the loan.
Here are some tips to help you reduce the risks of guaranteeing a mortgage for your children:
Only guarantee a loan for a small amount. If your children can afford to make a larger deposit, it will reduce the amount of money you're liable for.
Make sure your children have a good credit history. This will show the lender that they're a good credit risk.
Get a financial advisor to assess your financial situation. They can make sure you can afford to guarantee the loan without putting yourself at risk.
Make sure your children have a plan for how they will repay the loan. This should include a budget that shows how they can afford to make the monthly repayments.
Ensure your children have adequate personal insurances in case something goes wrong. Your financial adviser can advise on life insurance, Disability cover and income protection.
Ultimately, the decision of whether or not to guarantee a mortgage for your children is a personal one. There is no right or wrong answer, and it's important to weigh the risks and rewards carefully before you make a decision.