Does the bank require you to have a guarantor? Do your parents want to help with purchasing the apartment? Let's understand in depth the implications, risks, and solutions in the world of mortgage guarantees.
One of the common challenges in the mortgage process is the bank's requirement for guarantors. The bank, as a conservative financial institution, always strives to minimize risks. When the bank identifies a "weakness" in the client's file – whether it's low income relative to the desired monthly payment, short employment history, advanced age, or problematic credit history – it may condition loan approval on adding a guarantor.
Professional mortgage consulting at this stage is critical. An experienced advisor can examine whether the bank's requirement is justified, or if the mortgage mix can be structured differently to avoid the need for guarantors. However, in many cases, adding a guarantor is the only solution that enables property purchase, especially for young couples buying their first home.
This is the most common situation when the income of the main borrowers is insufficient. In this situation, the guarantor is considered a borrower for all intents and purposes. Their income is counted in full for calculating the payment ratio, and they are required to pay part of the monthly payment in practice (at least 20% of the payment). Usually, this involves parents helping their children.
A supporting guarantor is a more creative solution. They don't actually pay the mortgage from their account monthly, but their income is taken into account as a "safety net." The bank considers half of the guarantor's available income and adds it to the borrowers' income. This is an excellent solution for borderline cases, but requires special approval and sometimes slightly higher interest rates.
Here the guarantee is not based on income, but on an additional real estate property. If the borrowers don't have sufficient equity, parents can mortgage their apartment as additional collateral (within Bank of Israel limitations of up to 50% of property value). This is an excellent way to help children reach the required equity without taking cash out of pocket.
Signing a guarantee is not just a formal matter – it has significant financial implications that are important to understand before entering the process:
As part of mortgage consulting, we always recommend building an "exit strategy." The goal is to plan in advance when and how to release the guarantor from the obligation, for example in 5 years when the borrowers' income increases.
The good news is that a guarantee doesn't have to be forever. You can request the bank to release the guarantor (borrower removal) when the following conditions are met:
Proof that the borrowers' income has grown and is now sufficient to cover the payment without the guarantor's help.
Proper mortgage conduct over time (usually at least two years) without delays.
If the mortgage balance has decreased significantly or the property value has increased, the risk to the bank is reduced.
Don't take unnecessary risks. Professional mortgage consulting can help you understand if a guarantor is really needed, how to protect your guarantors, and how to plan their future release. Let's build a smart and secure mortgage together.
Schedule a Consultation Call