Removing A Guarantor From Your Home Loan

Around 60% of first home buyers receive support from their parents, most commonly through a guarantor home loan. It’s a practical way to enter the property market without a full deposit.

However, a guarantor arrangement isn’t designed to be permanent. Over time, most borrowers aim to stand on their own financially. Knowing when you’re eligible to remove a parent or relative as guarantor, and what lenders require, is an important step toward full financial independence.

How Long Does A Guarantor Stay On A Mortgage?

Guarantors stay anywhere from two to five years, depending on a couple of factors.

The first one is how quickly you pay down the loan, and the second one is how fast your property increases in value.

Keep in mind that the guarantee is not removed automatically and must be done through refinancing.

What Are The Requirements For Removing The Guarantee?

Most major and specialist lenders follow similar policies when it comes to releasing a guarantor from a loan.

You may be eligible to remove the guarantee once you meet the following:

• Your repayments in the last six months should be made on time.
• Your loan must be less than 90% LVR or 80% LVR (if you want to avoid LMI).
• Your credit history, income, employment, and other aspects of your situation must meet the lender’s policy.

Note: Exact requirements can vary slightly between lenders.

When Is The Best Time To Remove A Guarantor?

The best time to remove a guarantor is when your loan reaches 80% LVR or lower. This avoids Lenders Mortgage Insurance (LMI), often unlocks better interest rates, and usually results in a simpler approval process.

There are several reasons for this:

• You can potentially save thousands by avoiding LMI.
• You may qualify for a lower interest rate.
• It’s a more straight-forward process with less paperwork.

We usually only recommend that you remove the guarantee earlier if there’s a need to do so.

How Much You Owe Matters

What matters most to the banks is your Loan to Value Ratio (LVR), which is the percentage of your remaining loan amount against the value of your property.

For example, if you originally borrowed $525,000 (which includes the associated costs of completing the purchase including stamp duty and conveyancer fees) on a $500,000 property then your LVR was 105%.

If you have since paid the loan down to $400,000 then your LVR is 80%.

Your LVR may, in fact, be even lower than this if your property has grown in value.

Nevertheless, once your LVR is at 80%, you can remove the guarantee and avoid Lenders Mortgage Insurance (LMI).

Some people are under the impression that the guarantee is automatically removed when you owe less than 80% of the property value. Unfortunately, this isn’t the case!

You need to apply for a loan guarantor release, otherwise it will stay in place for the life of the loan.

If you or your parents really want to, some lenders will actually allow you to remove the guarantee once your LVR is at 90%. However, you’ll have to pay an LMI premium.

Removing The Guarantee At 90% LVR

You’ll need to internally refinance your mortgage.

If your bank isn’t offering you a competitive rate, it may be worthwhile to speak to us, and we’ll let you know which other lenders are available.

Keep in mind that different banks will value your home at different amounts. We can order an upfront valuation with more than one lender, which allows you to choose the lender with the highest valuation.

Removing The Guarantee At 80% LVR

With most lenders, we can complete a valuation request, and they will remove the guarantee without changing the loan.

One lender that works in this way is St George Bank.

With other lenders like CBA, their guarantor loans are set up as two loan accounts. One at 80% LVR and the other for anything above that.

Because of this, you just need to pay off the loan account for the additional amount and you can leave the other remaining.

If your property has increased in value, you’ll need to increase your loan amount on the loan account in which you owe 80%.

If it’s all too complicated, don’t worry!

Just call us on 1300 889 743 or enquire online to discover how we can help.

Why Is It Important To Remove The Guarantee Quickly?

Don’t forget that your parents or relatives have gone out on a limb for you to get into the property market.

Your obligation to them is to remove the guarantee as quickly as possible, realistically within 5 years.

Having a guarantee in place can stop your parents from fulfilling their future plans.

Being aware of their goals helps you to plan how soon you will remove the guarantee:

• Other guarantees: Are your parents planning to support your siblings? In some cases, it’s possible to have multiple guarantees on one property.
• Buying an investment: If your parents plan to buy an investment property, they may not have sufficient equity with the guarantee. It depends on the loan structure.
• Expanding their business: If they have a business loan, this may be secured on their property, which means the guarantee can reduce their future borrowing power.
• Selling their property: What if they sell the property with the guarantee on it? Some of the sale funds can be held in a term deposit as security for the guarantee until another property is found.

Ready To Remove The Guarantor From Your Loan?

If your loan is nearing 80% LVR or your property has increased in value, you may be eligible to release your guarantor. The right timing can help you avoid LMI, improve your loan structure, and restore your guarantor’s financial flexibility.

Call 1300 889 743 or fill our free online assessment form to check your eligibility and explore your options.