Removing a Guarantor from Your Mortgage

Some home loans use a family guarantee or additional property security. Consumer Protection warns that a guarantor may have to pay the borrower’s debt, fees and interest, and secured assets can be repossessed if the guarantor cannot pay.

The guarantee continues according to the signed documents until the lender agrees to release it. This article explains questions to put to the lender and the records the parties should keep.

Understanding the Guarantor's Position

The extent of liability depends on the signed guarantee. Consumer Protection says it may cover one loan or all of the borrower’s debts with that lender, and the lender may pursue the guarantor for money owed, including fees and interest.

While the guarantee is in place, your guarantor faces several impacts on their own financial life:

• Repayment exposure: Consumer Protection says the lender can pursue the guarantor for money owed, including fees and interest, if the borrower defaults or breaches the contract.
• Asset risk: Property or other assets used as security may be repossessed and sold if the secured obligations are not met.
• Scope risk: Check whether the document is limited to one loan or is an all-obligations guarantee covering other present or future debts.
• Independent advice: The guarantor should obtain legal advice on the signed guarantee, any cap, and the steps required for written release.

If your guarantor is approaching retirement or planning significant financial decisions of their own, releasing the guarantee becomes especially important. Their retirement plans, ability to downsize, or capacity to help other family members may all be affected by your guarantee.

When Can You Remove a Guarantor?

The core requirement for releasing a guarantor is straightforward: you need to demonstrate that you can support the mortgage on your own, without the additional security they provide. In practice, this usually means:

Property security and equity: The lender may assess the current property value, loan balance and its own credit policy. A particular equity percentage does not create an automatic right to release.

Borrower assessment: The lender may reassess income, expenses, debts and repayment history before deciding whether the loan can continue without the guarantee.

Payment history: The lender may consider account conduct, but on-time payments do not by themselves require it to release a guarantee.

The loan balance and the lender’s accepted property value affect its security assessment. Ask whether it requires a desktop estimate or registered valuation and who pays the cost.

The Removal Process

Releasing a guarantor is not automatic; you need to actively request it and go through a formal process. Here is what to expect:

• Contact your bank: Let them know you want to explore releasing your guarantor and ask about their specific requirements.
• Property valuation: The bank will need a current valuation of your property to calculate your equity position. This might be a desktop valuation or a full registered valuation.
• Financial assessment: You will need to provide updated income and expense information so the bank can confirm you meet their lending criteria independently.
• Application processing: The bank reviews your application and decides whether to release the guarantee.
• Legal documentation: If approved, legal documents are prepared to formally release the guarantee and remove the security over your guarantor's property.

Timing and costs vary. Ask the lender and lawyers to identify any valuation, application, discharge or legal costs before proceeding.

What If You Do Not Quite Have 20% Equity?

If you are close to 20% equity but not quite there, you have a few options to consider:

Lump-sum payment: Reducing the balance may change the lender’s security assessment, but check repayment limits or charges and obtain confirmation that release would follow.

Wait for property values to rise: If the market is moving in your favour, patience might get you there. However, markets are unpredictable, and waiting is not guaranteed to work.

Loan pricing or contract change: Ask whether the lender offers any alternative structure and request the total interest, fees and conditions in writing; availability and terminology vary.

Refinance: Another lender may use different criteria, but refinancing requires a new approval and can involve valuation, legal, discharge, break and adviser costs. Compare the total cost and do not assume approval.

Communicating with Your Guarantor

Throughout this process, keep your guarantor informed. They have a vested interest in being released from the guarantee and deserve to know the timeline and any obstacles. If your bank requires additional information or the process is delayed, let them know.

Obtain written confirmation identifying the guarantee released and check that any supporting mortgage or other registered security has been discharged where required. Do not assume a credit-file entry or registered interest changes automatically.

Proactive Steps to Accelerate the Process

If removing your guarantor is a priority, there are things you can do to speed up the timeline:

• Make extra repayments: Every dollar you pay above your minimum reduces your principal faster. Even small additional payments add up over time.
• Review your loan structure: If you have a floating or revolving credit portion, you can make unlimited extra payments without penalty.
• Avoid extending your loan: While lower payments might be tempting, they slow your equity building.
• Maintain the property: Improvements and maintenance support property values, which affects your equity calculation.

What If Your Bank Says No?

If your bank declines to release the guarantor, ask for specific reasons. Understanding why helps you address the issues. Common reasons include insufficient equity, concerns about your income stability, or poor payment history.

If you disagree with the decision, ask for the lender's reasons and use its complaints process if appropriate. Refinancing is a separate application; compare eligibility, security, fees and total cost, and use the lender's dispute-resolution scheme if a complaint is not resolved.

Keep the borrower, guarantor, lender and independent lawyers aligned on the request, decision, documents, costs and final written confirmation.