How long does a guarantor stay on a mortgage?

Around 60% of first home buyers get help from their parents, usually in the form of a guarantor home loan.

It’s a great way to get your foot into the property market if you have no deposit but when can you actually remove your parents as guarantors and what’s the process?

How much you owe matters

What matters most to the banks is your Loan to Value Ratio (LVR), which is the percentage of the 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 the cost of 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 then 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 in excess of 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.

When is the best time to remove the guarantee?

The ideal time to remove the guarantee is when you owe less than 80% of the value of your property.

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 simpler process with less paperwork.

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

Be aware of the guarantor’s future plans

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 rather spending money on lifestyle.

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 then 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.

If you’re not sure what you should do, you can speak with one of our expert mortgage brokers by calling us on 1300 889 743.

You can also enquire online to find out how our credit specialists can help you.

What to do in tricky situations

Can my guarantor sell their home?

You should talk to us before they put their home on the market.

It’s possible for a portion of the sales proceeds (to limited guarantee amount) to be transferred to a term deposit temporarily while they look for a new home.

However, there are several options depending on the nature of your situation so please contact us to discuss what is right for you.

Can I sell my home?

Yes, you can sell your home.

However, you should be careful to make sure that the amount you owe plus any selling fees (estimate 3% of the sale price) are less than the price you sell your home for.

What if I don’t have enough equity?

There aren’t any ways around it if you don’t have enough equity to sell your property.

We’d recommend holding on until you have sufficient equity to remove the guarantee or put the property on the market.

What if I get divorced?

We can refinance your guarantor home loan to have you as the sole owner of your property and borrower on your home loan.

You can refinance your existing guarantee with a new guarantee as well.

If you’re required to pay out your spouse and there’s sufficient equity then this payment can be funded by the new home loan.

Contact us on 1300 889 743 or enquire online and we’ll help you to remove your guarantee.

  • Natasha

    Hi, my guarantor (dad) is thinking of selling his home, the property which was used to guarantee my home loan. I’m not sure what to do and what consequences will follow so can I have him contact you guys so we both can understand this?

  • Hey Natasha, it would be good if you would talk to us since our brokers have dealt with quite a few situations like this before and know what it will mean for you and your home loan. You can speak with one of us by calling 1300 889 743.

  • Andeat

    If I go guarantor on a commercial loan, will that mean I need to be a higher commercial rate?

  • Hi Andeat,

    You won’t pay a higher interest rate just because the commercial loan is being secured by a guarantor’s property. However, higher rates may apply depending on the loan amount: the bigger the loan, the bigger the discount you may be eligible for.

  • roman

    I want to remove my guarantor and refinance to another lender. Problem is that I’m on a fixed rate contract though not much left. Can you help?

  • Hello roman,

    Yes, we can help you with that. The main issue here for you can be break fees since these can be quite expensive. Please discuss your situation with one of our refinance specialists by calling 1300 889 743 or simply enquire online and we will contact you instead:

  • Sam

    I am looking at selling my property with CBA, it is set up with the split loan guarantor. The house value is less than the combined mortgages, so will the sale price be split between the loans or go entirely on the non guarantor mortgage?

  • Hi Sam,
    You’d need to talk to CBA about this. They would need to send this to their credit department for assessment. The loan split just in your name must be paid out. The other loan split can potentially be refinanced as a CBA personal loan so that the guarantee is removed.
    If you’re a customer of ours you can speak to our customer care team and they’ll investigate this for you.

  • barbara

    I paid off my home loan to 85% LVR and I’m thinking of removing the guarantee on my guarantor home loan. Would it be better if I wait or remove my guarantor now?

  • Hello barbara,
    The ideal time at which you should remove the guarantee on a guarantor mortgage is when you’ve paid off the loan to 80% LVR. This way, you won’t need to pay lenders mortgage insurance, you may qualify for a lower interest rate and it would overall be a simpler process with less paperwork. However, if your guarantor’s plans are on hold, you should talk with them as well as your mortgage broker or bank manager and come up with your decision.

  • Joanne

    Hello, our fixed portion of our home loan expires in July and we would like to remove my parents as guarantor. Are we able to swap lenders or do we have to stay with the bank that holds the guarantee?

  • Hi Joanne,
    Yes, you can swap lenders and we can help you with removing the guarantor and organising the discharge. The first step is get the main property valued and find out the LVR. If it’s below 80% then it all can be done easyily. If not, the guarantor can still be removed but you’ll need to pay extra. It would be best for us to reassess your situation to refinance and then recommend. Please call 1300 889 743 if you’d like to discuss this with one of us directly or simple enquire online:

  • Corinne Cross

    Hi there, I still have a guarantor on my home loan and want to remortgage a small(ish) amount for renovations. I did not have to pay LMI in the past. If I keep the guarantor do I just have to pay LMI on the amount I am remortgaging?

  • Corinne Cross

    Hi there,
    I have a guarantor on my home loan. If I wish to remortgage a small amount for renovations, do I only have to pay LMI on the amount I am borrowing?

  • Hi Corinne,
    You’d either need to remove the guarantee and pay LMI on the full loan amount OR you can keep the guarantee in place and refinance to a new guarantor loan that pays for the renovations. You’d need your guarantor’s approval to do this. Would they be ok with this? It may mean that they stay as a guarantor for a little longer.

  • Joey Thomas Parsons

    Can we seek a better deal with a guarantor on our home i.e. approach another lender seeking a better interest rate?

  • Hi Joey,
    Do you mean to refinance your current home loan to a new home loan with a guarantor?
    Yes you can do this, however not every lender accepts this. Most only accept a guarantor for a purchase.

  • Denise Forwood

    what happens if the guarantor has passed away

  • Hi Denise,
    You’d need to speak to a solicitor about this. However for the ownership of the guarantor’s property to change the guarantee must be removed or replaced by a new guarantee from the new owners. Sorry to hear about your dad, hope you are coping ok.

  • Karen Tourney

    My husband and I are divorced and we are still joint owners in the house I live in with our children as was the divorce agreement. He has taken a mortgage on this house with me as guarantor. It was sposed to be that he could only get $200 000. Would he be able to get more without my knowledge or is he stopped at $200 000?

  • Hi Karen,
    My understanding is that you would have signed the loan application and the loan offer (contract) for the loan so you can check those to confirm the amount that he applied for. If he was seeking a further loan then he’d need your consent and for you to sign more documents. So it is unlikely he could get more without your consent. I’d recommend that you call the lender if you are unsure and check with them. As a guarantor you should be allowed to request information from the bank, however it can be more difficult, expect to have to go through a variety of departments to get the info confirmed.

  • Aiden

    Hi I’m looking at buying a property that is $330,000 I have 40000 in savings rather than take out mortgage insurance my mum is willing to go guaranture 20% deposit would be 66,000 would she need to go guaranture for the whole 20%? or just the amount on top of what I have saved to make it 20 % ? Cheers

  • Hi Aiden
    Yes she would just guarantee a smaller amount. The calculation is complex but as a general rule her limited guarantee would be Loan Amount x 1.25 – Property Value.

  • Home Owner

    Hello – my grandmother is guarantor for my loan and she is now looking to sell her property and downsize. My husband and I have a property each but in our own names. I do not have equity in my house to remove my grandma as guarantor. What are the options? Would it be a matter of trying to refinance and combine our loans and perhaps my husbands house would have equity to support the change? Thanks

  • Hi There,
    Yes potentially we could refinance your husband’s loan and increase the amount so that we can reduce the amount owing on your loan and remove the guarantee. The other potential option is that some lenders can accept a term deposit as security for a guarator loan. So if your grandma sells she could put some funds in a term deposit with your bank and they would move the guarantee to be secured on her term deposit. Then when she buys a new property the guarantee can be moved to that property. This is complex and best avoided. The option with your husband would be much easier.

  • Michael Lennard

    Hi, i have a mortgage i owe 205k, i need to get down to 180k to remove my garuntor and be able to refinance. If my priperty get revalued lower than 260k and i can’t remove my garuntor can i refinance my mortgage with a garuntor so i can draw out $35K in cash when i refinance?

  • Hi Michael,
    You can remove a guarantee easily if you owe less than 80% of the property value. You can borrow 90% of the property value but you need to pay LMI. For a loan under $300,000 LMI is relatively cheap, you can calculate your LMI premium here
    So yes you can potentially borrow up to $234,000 assuming you can afford it and meet all other standard lending criteria.

  • Jon

    Hi, is the guarantor required to guarantee the entire loan, or are they able to guarantee a set amount, like a 20% deposit and stamp duty costs?

  • Hi Jon,
    Yes it’s possible to limit the guarantee. The method of limiting the guarantee depends on the lender that you go with. Some have a separate loan account for the guaranteed portion whereas others have a figure mentioned in their loan contract.

  • Jane

    Hello ,
    I recently bought a house with my dad being the Guarantor, however he’s now getting divorced and I fear my step mother will take half of my house during the process. If it happens what should be the best option ?

  • Hi Jane,
    If your father was the guarantor using his property and he is not an owner of your property then we don’t believe there is any way that his ex-wife can claim any part of your property. However if she claims part of his property used for the guarantee then he may need to sell his property or obtain a loan on the property which may or may not be possible.

    So it’s best to talk to a mortgage broker and discuss some likely outcomes and they can let you know what would be possible from a finance point of view depending on different outcomes.

  • John

    G’day, we build in Doreen Victoria 1.7kms from The new Mernda station. About 1 year after we bought our land the land value increased by around $180k from $190k to around $370k. This was before Mernda rail opened up. Now that Mernda rail is opened I have been told our land would have gone up again because of this infrastructure. We have our mother as a deposit guarantor. With the increase in value would it be worth refinancing and in the process hopefully getting the deposit guarantor taken off and her getting her title back. The amount of the deposit is well below the value the land just in itself has gone up. We have also built a property and made improvements that should also add value to our asset. Loan amount was $412k.

  • Yes John, you can remove your guarantor at this stage. Looking at the increase in value that you have mentioned, it shouldn’t be a difficult ask as you could easily remove a guarantor once the loan amount is less than 80% of the property value. You can call us on 1300 889 743 or enquire online if you want to refinance your home loan to get the best deal available.

  • John

    Thanks for your help. I will be in touch as soon as I can.

  • Tracey

    Hi HLE, can I order a valuation of my property to remove my parents as guarantors? How much does the property have had to increase in value or does it depend on the home loan amount?

  • Hi Tracey,

    The lender will order its own valuation before removing a guarantor. Ideally, if the Loan to Value Ratio (LVR) on your property is less than 80% you can ask for the guarantor to be removed. Otherwise, you’ll have to pay Lenders Mortgage Insurance (LMI) if the LVR is above 80% (maximum 90% LVR accepted).

  • Ursula

    Hi, I have a 400-acre property which I purchased a decade ago. I’m looking to release my parents as guarantors on that loan. The estimated property value by the NSW govt. is $159,000 and the loan amount is $130,000 with CBA. Is this possible?

  • Hi Ursula,
    Yes, it is possible. Ideally, you would pay down the loan to 80% ($127,000) of the property value and then contact CBA for a guarantor removal. You can remove a guarantor with a mortgage balance of 90%, however you’ll incur LMI. They will provide you with a guarantor release form and then conduct their own valuation. CBA or lenders, in general will go with their own valuation rather than third-party valuations.

  • Nellie

    Hi, I’m sorry if this sounds silly, but I would like some clarification. I’m a registered nurse with a $20k help university debt. I just had a question regarding the limited guarantee, once you reach the 20% mark by paying off your mortgage, do you have to pay LMI when releasing the guarantor? How do you release the guarantor? Thanks in advance.

  • Hi Nellie,
    Lenders Mortgage Insurance (LMI) is typically only applicable when the loan amount exceeds 80% of the property value. So, once you’ve paid off your mortgage to below 80% LVR, you can release the guarantor without incurring LMI. In fact, you can actually release the guarantor when the LVR is below 90% with some lenders but you’ll be liable for LMI. There may be a small discharge fee ($300-350 on average) when removing a guarantor from the mortgage. To release the guarantor you’ll need to submit a discharge/refinance authority form with your lender and they will order their own valuation of the property.

  • Piper

    Hi, I bought a property with my grandson 10 years ago and now I’m retired. I need him to take over the property in his name. The thing is it was really bought for him, I just had to be on the paperwork. Is there an easy way to do this?

  • Hi Piper,
    The best way to do this would be to speak to the lender directly as they hold the mortgage to the property. If you call their customer hotline, they shall be able to assist you.

  • Jimus Turner

    I’m looking at buying my grandparents house with help from a garentaur. I’m also being gifted a portion of this property to bring the overall price down which I know I have to pay gift tax on. In doing this would the amount I’ve been gifted instantly turn into equity and possibly bring me under the 80% lvr therefore I could release the garentaur sooner?

  • Hi Jimus,

    Some of our banks have special home loan lending policies for buying a property below market value. For example, there may be plenty of “gifted equity” in the property but banks are often hesitant to grant approval for the mortgage. The majority of banks will require you to have 5% in genuine savings no matter how much the property value has been discounted.

    Despite this, buying a property below market value is accepted by some of our banks with no savings whatsoever.

    If you’re gifted enough equity, you may not even need a guarantor. As an example, if your grandparent’s property is valued at $400,000 and you’re gifted 20% of the property value ($80,000). You can still get all the benefits such as paying no lenders mortgage insurance and avail interest rate discounts without a guarantor.

    Since, this will be a favourable purchase, a solicitor will need to draft the contract of sale.