When asked to become a guarantor for a mortgage, it is crucial to understand your rights and obligations beforehand, advises the Bank of Portugal (BdP).
In practice, a guarantor serves as a security commonly required by financial institutions when granting a mortgage to ensure the loan is repaid.
There are six key points to consider before agreeing to be a guarantor:
1 – Being a guarantor means you are responsible for the repayment of a loan. If the borrower fails to meet their obligations, the guarantor must assume responsibility for the payment. Should the guarantor fail to pay when required, the financial institution may take legal action to claim their assets and income.
2 – Carefully review the documents provided by the institution before signing the credit agreement. Those who will act as guarantors have the right to receive a copy of the European standardized information sheet (FINE), detailing approved credit conditions, and a draft of the credit agreement. A minimum reflection period of seven days is available, during which the credit agreement cannot be concluded. This period ensures that potential guarantors thoroughly assess the commitment and make an informed decision.
3 – Check the credit agreement for clauses related to borrower default. In some agreements, the financial institution may demand immediate payment from the guarantor. Verify whether the agreement includes a waiver of the “benefit of prior excussion.” If so, the financial institution can require direct payment from the guarantor, even if the debtor’s assets could cover the outstanding amounts.
4 – Accepting to be a guarantor means the loan is listed on your “credit responsibility map.” This could impact your ability to secure future loans, as your obligations as a guarantor will be considered during the credit assessment. The credit responsibility map is accessible for free on the Bank of Portugal’s website. Guarantor responsibilities are identified differently depending on whether the credit payments are up-to-date or overdue.
5 – You can only be released from guarantor obligations if the financial institution agrees to a substitution. It is not possible to cease being a guarantor during the credit agreement term without the institution’s consent.
6 – If you are a guarantor for a credit agreement in default, you can request to join the Out-of-Court Arrears Settlement Procedure (PERSI) with the institution to find a resolution to the payment issues and avoid legal actions. The institution must inform the guarantor of any payment delays within 15 days after the obligation’s maturity date. Guarantors can initiate PERSI within 10 days after being notified by the institution to settle the debt. The guarantor’s PERSI is independent of the debtor’s PERSI, yet a joint solution involving both parties is possible to resolve the default situation.
