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Difference Between Guarantor and Co-Borrower in Home Loan

25 November 2022
Difference Between Guarantor and Co Borrower in Home Loan

The idea of purchasing a new home to start over with your family is genuinely exciting, but the process of securing a home purchase could be tedious and taxing all at once. Needless to say, you have to be financially prepared as you will shell out substantial sums of money, and will probably need to apply for home loans from lending institutions to help you seal the home deal.

 

The real estate industry is ripe with industry jargon that might fail to register immediately to the untrained ear. Especially if these are two opposing terms, or terms which have deceptively minimal differences but do make a difference nonetheless, you might find yourself erroneously using them interchangeably.

 

If it's going to be your first time applying for a home loan, you will come across the terms "guarantor," "co-borrower," or "co-maker." If you find yourself a little bit perplexed about what these terminologies exactly meant, as well as the terms and conditions that come along with them, look no further as this article zeroes in on demystifying these loan terms for your much better understanding.

 

 

Difference between co-borrowers and guarantors

Seeking the assistance of financial institutions to fund a property purchase is commonplace. However, there are certain criteria to meet before lenders grant a loan request toward securing a home purchase, such as scrutinizing an applicant's credit history, which will include data about past borrowing and how well (or bad) a debtor is when paying their dues.

 

If your creditor doubts your economic capacity to continually pay for a loan, a co-borrower and a guarantor will help eliminate doubts from your lender. A co-borrower will help you secure a contract agreement by pledging that in the event of nonpayment from you as the primary borrower, he or she will shoulder the remaining payments owed to the lending institution.

 

A guarantor, meanwhile, acts as an "insurance" that you, as the primary applicant, have the inherent capacity to pay. A guarantor then helps in the establishment of your creditworthiness as well as increases your chances of getting a pre-approved loan.

 

This brief differentiation between the two terminologies is just the tip of the iceberg. Let's talk about the guarantors, co-borrowers, and their responsibilities more below.

 

Who is the Guarantor?

The Bangko Sentral ng Pilipinas, which oversees banking and financial institutions in the country, pens a comprehensive definition of who a guarantor is, which in simpler terms points to a person or an individual who pledges to the creditor by guarantee that the payments owed will be paid accordingly.

 

A great alternative to finding a guarantor is collateral, which will likewise help to mitigate the risks of nonpayment from the debtor. The collateral will be assessed by the financing institution to determine if it suffices to serve as a guarantee that the loan that is owed will still be fulfilled in the event of a default.

 

Who is the Co-Borrower?

Also commonly known as a co-maker, a co-borrower acts as the co-payor and, as stipulated in a contract agreement, shall be made responsible for the repayment obligations owed if the primary borrower fails to fulfill his or her financial obligation in due time, which in consequence will result in a loan default. A loan default happens when there is a failure to fulfill monthly payments, typically with a grace period of not more than ninety (90) days, depending on the lending institution.

 

It is then important to note that the co-borrower, after co-signing the contract, now acts as though he or she has taken a loan together with the debtor, making him or her a part-owner of the property purchase. A co-borrower (co-applicant or co-signer) must be a family member or a trusted friend who must have a steady source of income to be deemed qualified as such.

 

More distinctions between guarantors and co-applicants

Under Article 2058 of the Civil Code, the guarantor shall not be forced or compelled to pay for the debtor's entire debt unless all legal remedies have been exhausted. Only in the event of a loan default and exhaustion of collateralization shall the guarantor be compelled by the creditor to shoulder the loan repayments.

 

A co-borrower, on the other hand, is obliged to pay for the debtor's unpaid loans from the very beginning after he or she signed a contract agreement that makes him or her equally responsible for the loan application. Therefore, if both the co-borrower and guarantor are co-signers in the contract, the first to be accountable in the event of nonpayment is the co-borrower.

 

A guarantor has the advantage of excussion, where he or she will only be sought in the matter concerning payments after all legal remedies and property acquisitions for collateralization have been exhausted.

 

Can a debtor be jailed for nonpayment of home loans?

Under the Bill of Rights enshrined in the 1987 Philippine Constitution, no person shall be subjected to arrest and incarceration for non-payment of loans. But be that as it may, a criminal case can be filed and pursued in relation to the nonpayment, such as for deliberately running away without informing your creditor, or selling a personal property while the said property is mortgaged and debts are still unpaid.

 

Who will pay for the loans if the principal borrower dies?

The debts of a principal borrower do not die with him or her, in stark contrast to popular claims. While the dead certainly cannot be confronted for any debts unpaid, the rule of succession will apply, wherein family members will be sought to make payments necessary to fulfill the unfinished financial obligation of the principal borrower who perished.

 

If a co-borrower in the signed contract agreement is a friend, he or she will be the first resort to fulfill the payment obligations.

 

What is the purpose of having a co-borrower and a guarantor?

Lending institutions and individuals have all the right to subtly doubt a debtor's financial capacity from the very beginning of the transaction. It is then the primary responsibility of a principal borrower to remove all doubts coming from his or her creditor about his or her capability to make payments on time until all necessary payments are made.

 

The purpose and existence of co-borrowers and guarantors are to endow lenders and creditors the confidence they need to fully trust the capacity of a home loan applicant to pay and, by extension, the capacity and willingness of the co-borrower and guarantor to shoulder home or mortgage loan payments if the principal borrower fails to fulfill his or her financial responsibility. This ensures a smooth transaction that will not result in conflicts down the road.

 

 

Secure Your Dream House and Loan Application with Lumina Homes

Lumina Homes is awarded the major recognition of being a top developer of a high-quality yet affordable house and lot in the Philippines by none other than Pag-IBIG Fund, which is the main source of home loan applications for many aspiring property owners. This makes investing in an affordable house and lot for sale guaranteed to be worthwhile and trustworthy with Lumina Homes, as the top home-financing institution in the country approves the real estate company to be as such.

 

Most Lumina homeowners opted to help finance their homes with Pag-IBIG, but there are two other alternatives that aspiring homebuyers can also consider besides Pag-IBIG, which are (1) a bank housing loan and (2) an in-house financing loan. The latter is when the transaction is only between the homebuyer and the home provider. This is chosen when a homebuyer is not granted a loan request by either the bank or Pag-IBIG. In-house financing becomes their last resort to securing their dream house, which typically entails higher interest rates compared to banks.

 

With Lumina Homes, you are entitled of having up to 14 months of downpayment term and a maximum of 20 years for your overall loan term. With Lumina Homes, the attainment of your dream affordable house and lot is well within your means, made less financially daunting with discounts, promos, and flexible payment terms. For more inquiries, send us a message and one of our available representatives shall accommodate you with all your investment concerns.

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