Removing a Guarantor

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Guarantor Loans – Frequently Asked Questions

 

1. What is a guarantor?

A guarantor is usually a close family member who offers part of their property’s equity as extra security for your home loan.
This can help the borrower:

  • Buy sooner with a smaller deposit

  • Avoid costly Lenders Mortgage Insurance (LMI)

  • Potentially access lower interest rates

  • Keep more of their savings for renovations, emergencies, or other investments

2. Who can be a guarantor?

Most lenders only accept immediate family members — such as parents, siblings, or sometimes grandparents.

3. How does it work?

The guarantor’s property is used as additional security for the borrower’s loan.
This reduces the lender’s risk, meaning the borrower may be able to borrow up to 100% (or more to cover costs) without paying LMI.

4. Is it a limited guarantee?

Yes. Most guarantor loans in Australia are limited guarantees, meaning the guarantor is only responsible for a set portion of the loan, not the whole amount.

Example:

  • Purchase price: $1,000,000

  • Stamp duty & buying costs: $45,000

  • Main loan: 80% of purchase price = $800,000

  • Guarantee amount: $1,045,000 − $800,000 = $245,000

The guarantor’s property is used to secure that $245,000 portion, but the borrower makes all the repayments.

5. Does the guarantor have to pay anything?

No. The guarantor doesn’t give the borrower money — they provide a legal promise backed by their property’s equity.
However, if the borrower can’t repay the loan, the lender can recover the guaranteed amount from the guarantor.

6. What are the risks?

If the borrower defaults:

  • The guarantor could be asked to repay the guaranteed amount

  • The guarantor’s property could be at risk if repayment isn’t made
    That’s why independent legal and financial advice is mandatory.

7. How is a guarantor removed?

A guarantor can be released once the borrower has at least 20% equity in their property — from:

  • Loan repayments

  • Property value growth

  • Cash lump sum repayments

  • Or a combination of the above

The process:

  1. Lender orders a property valuation

  2. Borrower completes a guarantor release/discharge form

  3. Guarantor’s property is removed from the loan

Example:

  • Purchase: $600,000 | Loan: $540,000 (90% LVR)

  • After 4 years: Loan = $510,000, Value = $640,000

  • New LVR = 79.7% → Guarantor is released

8. Can someone be a guarantor for more than one loan?

Yes, but lenders will check their total financial commitments before approving.

9. What if the property value drops?

If equity falls below 20%, the guarantor may need to remain on the loan until the equity improves.

10. Does the guarantor have to be working?

Not necessarily. Retirees or non-working guarantors may be accepted if they have enough equity and understand the risks.
All guarantors must get independent legal advice before the loan is finalised.