Loan guarantee: Difference between revisions

Popular with young borrowers who do not have a large deposit saved and need to borrow up to 100% of the property value to purchase a property.<ref>{{Cite news |last=Jones |first=Rupert |date=2022-07-23 |title=Help to buy scheme: the clock is ticking if you want to apply |language=en-GB |work= |url=https://www.magicalcredit.ca/what-banks-look-when-reviewing-loan-application/ |access-date=2023-04-29 |issn=}}</ref>{{citation needed|date=March 2017}} Generally, their parents will provide a guarantee to the lender to cover any shortfall in the event of default.{{citation needed|date=March 2017}}

There are three main types <ref>{{Cite web|url=http://www.which.co.uk/money/mortgages-and-property/mortgages/guides/types-of-mortgage/guarantor-mortgages|title=Guarantor mortgages - Which?|website=www.which.co.uk|date=20 July 2015|language=en|access-date=2017-03-13}}</ref>

# Family offset mortgage – typically, a parent or grandparent will put their savings into an account linked to the borrower’s mortgage. They do not get any interest on these savings whilst offsetting the mortgage, but will be able to get their money back in full once the mortgage has been paid down to between 70% and 80% of the property’s market value.

# Family deposit mortgage – a family member will place a deposit in a dedicated savings account and is held as security against the properties mortgage. Interest is paid on this deposit, but if the borrower defaults on their repayments, then money will be taken from this savings account.

An [[unsecured debt|unsecured personal loan]] that is popular with borrowers who have a poor [[credit rating]]. They also require the [[guarantor]] to meet the borrower’s obligations if they default on their loan repayments.<ref>[https://darkhorsefinancial.com.au/secured-unsecured-business-loans/ Unsecured Business Loans]</ref>

Loan guarantees can also be extended to large borrowers for national security reasons, to help companies in essential industries, or in situations where the failure of a large company will harm the larger economy, For example, [[Chrysler Corporation]], one of the "big three" US automobile manufacturers, obtained a loan guarantee in 1979 amid its near-collapse, and [[lobbying]] by labor interests. The loans are made by private lenders with the caveat that the government will pay off the loans if the company defaults on them. Chrysler did not go into default. Another example was the creation of the Emergency Loan Guarantee Board to administer $250 million dollars in US government loan guarantees made to private lenders on behalf of Lockheed in 1971. The program ended in 1977 when Lockheed restructured its debt to its 24 lending banks ending the program ended. Over $30 million in Guarantee commitment fees paid by Lockheed and it'sits lenders to the board created over $29 million transferred to the US treasury. <ref>{{cite web |title=Implementation of the Emergency Loan Guarantee Act |url=https://www.gao.gov/products/PSAD-78-66 |website=Government Accountability Office |publisher=US government |accessdateaccess-date=26 October 2018}}</ref>