Bank Guarantee

A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you’ve borrowed plus interest.

Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.

Seven things to look for in a mortgage

  • The size of the loan
  • The interest rate and any associated points
  • The closing costs of the loan, including the lender’s fees
  • The Annual Percentage Rate (APR)
  • The type of interest rate and whether it can change (is it fixed or adjustable?)
  • The loan term, or how long you have to repay the loan
  • Whether the loan has other risky features, such as a pre-payment penalty, a balloon clause, an interest-only feature, or negative amortization

Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. A bank guarantee, like a letter of credit, guarantees a sum of money to a beneficiary. The bank only pays that amount if the opposing party does not fulfill the obligations outlined by the contract. The guarantee can be used to essentially insure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

Bank guarantees protect both parties in a contractual agreement from credit risk. For instance, a construction company and its cement supplier may enter into a contract to build a mall. Both parties may have to issue bank guarantees to prove their financial bona fides and capability. In a case where the supplier fails to deliver cement within a specified time, the construction company would notify the bank, which then pays the company the amount specified in the bank guarantee.

The most common kinds of guarantees include:

  • Shipping guarantees: This kind of guarantee is given to the carrier for a shipment that arrives before any documents are received.
  • Loan guarantees: An institution that issues a loan guarantee pledges to take on the financial obligation if the borrower defaults.
  • Advanced payment guarantees: This guarantee acts to back up a contract’s performance. Basically, this guarantee is a form of collateral to reimburse advance payment should the seller not supply the goods specified in the contract.
  • Confirmed payment guarantees: With this irrevocable obligation, a specific amount is paid by the bank to a beneficiary on behalf of the client by a certain date