How to Remove a Guarantor From Your Home Loan

Are you a first-home buyer wondering how to remove a guarantor from your home loan? Maybe you’re a guarantor to someone else and want to remove your guarantee. Whether you’re ready to break the guarantor/guarantee bond or are simply curious about the removal process, our expert mortgage brokers are here to help. 

What is a guarantor?

A guarantor in the property market refers to a third party - often a parent - who can pay your mortgage if you default on your repayments. These payments also include any additional fees, charges and interest. A guarantor can offer additional support and allow first-home buyers to enter the market earlier, as they’re essentially guaranteed by someone who can cover the loan for them. 

Who can be a guarantor? 

While there are no hard and fast rules about who can be a guarantor, they are generally parents or family members of the home buyer. However, not everyone qualifies as a guarantor, so you may want to think twice before asking your mate if they’d be willing.  Despite varying between lenders, there are general criteria guarantors must meet to officially become a guarantor.  These criteria often include: 

• The guarantor must have sufficient equity in their property (at least 80 per cent) or own the property outright.
• The guarantor must have a stable income.
• The guarantor must have a good personal credit rating.
• The guarantor must be an Australian citizen or a permanent resident.
• The guarantor must be above 18 but below 65 years old (it’s uncommon for lenders to accept more senior people and retirees as guarantors).
• The guarantor’s property must be in Australia. 

When can you remove a guarantor from your home loan?

Again, there is no set formula for when you can remove a guarantor from your home loan  -  this will change between lenders - but a guarantor can generally be released once your loan is less than 90 per cent LVR (or 80 per cent if you want to avoid paying lender’s mortgage insurance) and you’ve made all repayments on time from the last six months.  Check out our Loan-to-Value (LVR) calculator to confirm your current per cent. To remove a guarantor, you’ll also need to ensure you can guarantee the remaining amount on your own, without needing the remaining balance to be guaranteed by a third party. Alternatively, you may be able to remove a guarantor if your property value has significantly increased, meaning the equity in your home will allow for the removal of your guarantor. 

How to remove a guarantor from your home loan

Here are the steps you will need to take if you fit all the criteria and are ready to have a guarantor removed from your loan. 

• Firstly, you’ll need to contact your Inovayt mortgage broker, who will reanalyse your financial situation.
• If they’re satisfied with where you’re at, they will arrange a bank valuation.
• After considering your current LVR, they can confirm the total loan amount required.
• Working with our network of lenders, we’ll assess your application and ensure you meet their criteria.
• From here, we will submit a partial release or internal refinance. You can apply for a partial release if you have an 80 per cent LVR. However, if you have a 90 per cent LVR, you must complete an internal refinance, and the loan will be subject to LMI approval. 
• From here, you’ll typically wait 5-8 days for the bank to process your application.
• Lastly, your property release or internal refinance is completed and approved. 

What happens if a guarantor sells their house?

When entering into a guarantor/guarantee partnership, it may have never been the intention of the guarantor to sell their house. However, situations change, and there may be an unexpected circumstance that means the guarantor needs (or wants) to sell their home.  If the guarantor sells their house, the guarantee must be paid back by either the sales proceeds or a savings/equity release loan from the borrowers. It’s important to note here that the net sale proceeds from the sales would be less the amount that is guaranteed. For example, the guarantor would have $100,000 less from the sale if that is the amount that is guaranteed.  Although it will vary depending on the lender, it’s often tough to sell your property if you’re a guarantor. This is something that will need to be carefully considered before entering into a guarantor/guarantee agreement. 

Is a guarantor loan right for me?

There are many benefits to guarantor loans - the most significant being first home buyers struggling to save for a deposit can enter the market sooner. Some other pros include: 

• First home buyers can save money on insurance fees (like LMI) by using a guarantor. 
• As discussed in this blog, guarantors aren’t permanent and can be removed down the track. 
• Often, having a guarantor allows you access to better interest rates and higher-valued property. 

On the flip side, there is an element of risk with guarantor home loans. This risk may include:

• Liability for the guarantor if the guarantee fails to meet mortgage repayments. This jeopardises the guarantor’s financial security and may mean they need to sell their house. 
• Taking out a loan they can’t afford may increase financial and mental strain on the guarantee. 
• Important financial decisions - like deciding to have a guarantor - can be complex family matters. If things go wrong, there is a chance for the relationship between the guarantor and the guarantee to break down. 

Want to learn more? Have a read of our blog, Using a Guarantor Loan to Purchase a Home.

Why a mortgage broker should build a strategy for you to remove the guarantor from your home loan

An Inovayt mortgage broker will provide you with a personalised strategy to remove your guarantor’s guarantee from your home loan as soon as possible. This includes the following suggestions:

• Building equity in the property through regular mortgage repayments above the minimum increases the buyer's ownership stake.
• Reassessing the property's value to identify potential appreciation every six months enables the buyer to negotiate a lower loan-to-value ratio.
• Utilising offset accounts or redraw to accelerate debt reduction through reduced interest repayments. 

How can an Inovayt mortgage broker help remove a guarantor from your home loan?

Removing a guarantor from your home loan can be a complex process. With the help of an Inovayt mortgage broker, you can remove the guarantor from your home loan and ensure both parties are looked after. Get in touch today.