Housing loan Guarantor

 

Housing loan Guarantor

 

Definition:
Guarantor is someone/organization guarantee on your loan/debt.

Example:

Ali wanted to purchase this property from Ahmad, he wished to get housing loan from Bank to secure the funding on this property to Ahmad. However, the bank doesn’t fully confident in Ali financial profile, there’s a slight risk he will default on this loan.

Here comes “Rich father” a very financial stable person, whom are willing to guarantee the bank that Ali will not default on his loan, by subscribing himself as guarantor on this loan.

Bank will assess RICH FATHER’S financial position, well he is rich and capable as found out =D ! Hence the bank has full confident on this deal and approved Ali’s loan to secure this property.

RICH FATHER has now put his name on the board, if ever ALI default, RICH FATHER will be in every legal rights to carry the burden of the loan, else RICH FATHER’S financial record will be blacklisted.

In Malaysia nowadays, there isn’t many banks approving such practice anymore, as it deem to be a risky business to the bank. There are only 2 banks that still allows such practice, which is OCBC and Maybank.

One Local and one Foreign bank, the rest ceased to provide such facility anymore.



Being a guarantor won’t add the housing loan debt into the guarantor’s CCRIS. Hence they are purely an angel helping out fellow family to secure housing loan with their income added together.

Their name won’t be included in SPA(Ownership) and LOAN (debts). The loan will be a problem to them if and only if ALI default on the loan. It’s a double edged sword.

However, being a guarantor comes with criteria to adhere with, before bank will allow adding guarantor into the loan picture. There are 2 main criteria as per 2017:

1. Guarantor must be immediate family members (Spouse, siblings, parents & childrens).

Which make sense, as immediate family members will more likely to deal with the default compare to friends long distance cousin.. etc.

2. Guarantor currently must have 2 active housing loan.

One of the sensible reason is to prevent abused of using guarantor method.
If A has no loan, able to be guarantor to B :Example

-A became guarantor to B. ( B1 property)
-B became guarantor to A. ( A2 property)

-A became guarantor to B. ( B3 property)
-B became guarantor to A. ( A4 property)

With this process, they will get 2 properties each, 4 in total with each other piggy back each other back.
This sounds like a loophole, that’s why bank disallowed guarantor without 2 housing loan in their ccris.

3. Here is a bonus. Bank would only utilized 70%-30% ratio of the guarantors income for income calculation.

Example:

Guarantor A gross income is RM10,000

Guarantor B gross income is RM3000

Bank will only recognized RM7000 of A’s income.

Conclusion:

Being a Guarantor is not all that glamourous but a double edge sword title. Once main borrower defaulted, you have to piggy back the debt, else both plummet down the sink together.

Cheers

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