I recently talked to someone who was looking to buy a property in New Zealand. The budget was tight, but no worries – their parents in Australia were happy to go guarantor for the mortgage.

Then I explained what this actually meant. There was a sudden lack of enthusiasm.

The New Zealand government spells it out. A guarantor is “anyone who promises to be responsible for the debt of a borrower. They make the promise to the lender and if the borrower doesn’t pay what is owed, the guarantor may be called on to pay, or the lender may repossess any of the guarantor’s property listed as security for the debt.”

So if you ask a bank to give you a mortgage with a guarantor backing up the loan, here’s what will happen. The bank will need the guarantor’s own property as security, with the right to sell it if you bail on your loan repayments. They will ask your guarantor for a list of their assets, liabilities, income and expenses in order to check creditworthiness. It’s pretty heavy stuff.

It’s good when families back each other up, and it may seem tempting to help a younger relative by guaranteeing his or her loan. But there are better ways of achieving the same result. Talk to us.

Are you looking to restructure your mortgage or apply for a new one? Make sure you talk to us first. Make an appointment.