A mortgage guarantee is a guaranteed repayment scheme that is offered to borrowers.
This could mean you have to make a monthly payment as a guarantee for a fixed period, which is usually between 5 and 10 years, depending on the amount of guarantee you have. You can use this calculator here to have an idea of what your your monthly payments will be like.
All mortgage guarantee payments are subject to income tax, but guarantee payments that are subject to non-refundable tax charge (NRC) will not be taxed.
The maximum amount you can make a guarantee payment is 50,000 for a standard mortgage guarantee, but all these limit are subject to review. For further information about Mortgage Guarantee schemes, see the guide Mortgage guarantee schemes and any variations.
For information about a refundable guarantee fee for a guarantee scheme, see the guide Tax deductions and other repayment obligations for guarantees.
How mortgage guarantees work
In a guarantee, you will be shown information about the chance of repaying your mortgage loan and the costs of repaying your mortgage loan, and these will be automatically taken into account by the lender when it makes its mortgage loan offer to you. If your income is too high, it may decide to take out an additional premium to ensure you don’t overpay, which may increase the amount of the premium you have to pay.
The guarantee will be kept up to date as the lender’s mortgage loan information changes, and if you do not make a payment during the scheme period, the guarantee may lapse, and you may have to repay the amount you have overpaid.
If you pay your mortgage off early, or if you sell your house, you will have a total amount owed, including the amount you paid to stay in the house and any guarantee payments, which is then released from the guarantee.
If you have a guarantee and your repayments are over what you can afford, you will usually pay more for the standard guarantee. If you make less repayments, the lender may take out an additional premium to ensure you don’t overpay, and may charge you more than you are paying now, so you pay more in total. You could lose the benefit of the mortgage guarantee, and lose your home.