Removing a guarantor from your mortgage

The guarantee has no standard 2, 3 or 5 year expiry. It stays in place until the lender releases it under the agreement. Keeping up with repayments and building equity can help you qualify, but neither automatically ends the guarantee.

Start a review when the loan has reduced, your property may be worth more or the family needs its security released. We also need to check your current finances, repayment history and any other debts linked to the properties.

To calculate LVR, divide the loan balance by the property value accepted by the lender, then multiply by 100. Use your home's standalone value for this review, without adding your parents' property.

For a home valued at $450,000, 80% is $360,000. If you owe $405,000, your LVR is 90%. You would need to reduce the loan by $45,000 to reach 80% at that valuation.

Thomas bought with his parents as guarantors. He paid down his loan while his home’s value rose. Together, those changes put him in a position to ask the bank to release his parents.

At or below 80%, many standard loans can avoid LMI, which makes this a useful time to ask for a release. The lender decides whether it can process a partial release, vary the loan or needs an internal refinance or new application.

Above 80%, I would still check the options if your parents need to be released. Some lenders may consider a release with LMI, a suitable refinance or another accepted arrangement. It is not an automatic right at 90%.

Westpac's published release criteria give one example: it considers repayment conduct and whether LMI is no longer needed, or the borrower is willing to pay a premium. We still need its approval for the particular loan.

LMI may apply when the remaining loan is above the lender's usual limit without a guarantee. It is not compulsory on every loan above 80%: some products or eligible borrowers qualify for an exception.

Ask for a current quote. LMI premiums can differ between lenders for the same borrowing, so I compare the actual cost before recommending a refinance. Our LMI waiver guide explains some of the exceptions.

Ask which period of repayment history the lender requires rather than assuming every bank uses the same 6 or 12 month rule. If there have been missed payments or hardship, tell us early so we can check the appropriate next step.

There is no single release fee or guaranteed turnaround. A straightforward release and a full refinance involve different work. We need the lender's current fees and processing estimate before giving you a budget or date.

Timing can depend on the valuation, approval, signed forms, the guarantor's existing lender and registration work. If your parents are selling, have the release agreed and coordinated with settlement. Do not promise they can complete a sale based only on an estimated processing time.

I would compare costs over the remaining loan term too. Resetting a loan with 22 years remaining to a new 30 year term may reduce the monthly payment while adding interest overall.

Ask what is preventing the release. A valuation shortfall needs a different response from an income problem or a security document issue. Once we know the reason, we can choose a useful next step.

If affordability is the issue, a higher valuation alone will not fix it. We may need to review debts, accepted income or the purchase and loan structure before another application.

Our guides to paying off your home loan faster and building home equity explain options to discuss before committing spare cash or spending on renovations.

Tell us before the family commits to a contract or new borrowing. The bank may still rely on their property even when your repayments are up to date.

A sale can proceed once the lender accepts the discharge arrangements. That may mean releasing the guarantee, paying down debt, replacing the security or holding an agreed amount of cash as security. The bank must approve the arrangement.

Do not assume all the sale proceeds will be available for the next home. If money is held as security, your parents need to understand how much, for how long and the conditions for getting it back.

Ask for the payout and security-release requirements before you sell. Sale proceeds need to cover the relevant debt and costs. If there is a shortfall, the guarantee may still be enforceable; selling does not itself clear the obligation.

A separation agreement does not remove a borrower or guarantor from the bank's contracts. The person keeping the property may need approval to take over the loan, refinance or provide replacement security.

In Sandra and Pietro's example, Sandra kept the home after they separated. His parents' guarantee was replaced with support from her parents through a refinance. That option depends on the new borrower, guarantors and security being accepted. Have your solicitor and broker coordinate the ownership and loan changes.

Our divorce and separation home loan guide explains how the refinance, payout and legal documents fit together.

Contact the lender and the family's solicitor. The guarantee does not simply disappear, and the documents, estate and authority to act need reviewing. Avoid assuming either that an immediate release is mandatory or that a replacement guarantor can be added without approval.

Ask the bank for a full list of the loans and guarantees secured against the property, including any agreed priority amount. A title search alone may not tell you how much equity is already committed.

On one of our files, the guarantors thought their property only supported an $800,000 loan. The bank later confirmed a $1,000,000 priority amount under its security arrangements. More of the property's equity was already committed than the family expected, leaving too little for the proposed guarantee. The deal could not proceed as planned.

I want that checked before the family commits. Paying down one loan account does not necessarily release the property if it still supports other debts.