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How Long Does a Guarantor Stay on a Mortgage?

Looking to find out more about guarantor home loans? Read about how they work and compare your home loan options with Savvy.

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, updated on August 8th, 2023       

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Applying with your parent or grandparent as a guarantor on your mortgage can be a highly effective way to sidestep the standard 20% deposit requirements imposed by lenders. You might be wondering what the implications are when applying with a guarantor and how long they stay on your mortgage, so you can find out more and compare your options with Savvy today.

How long does a guarantor stay on my mortgage?

There is no set time over which a guarantor will stay on your home loan. If you apply initially with a guarantor and don’t refinance it throughout the duration of its term, your guarantor will remain attached to the loan until its conclusion.

However, there are ways to remove a guarantor from your home loan prior to its conclusion, namely the refinancing mentioned previously. This acts as a brand-new loan for you, replacing your current one and enabling you to take on its repayments instead. Because of this, you can simply apply for a new home loan without a guarantor attached and, if accepted, your initial loan will be closed out and your guarantor and their security will be released from your mortgage.

There may be other special arrangements in place with your lender which enable your guarantor to be removed from your loan without refinancing, particularly if you’ve built enough equity to cover a 20% deposit on your property, but this is the main way to remove a guarantor from a home loan if you wished to do so.

What are the loan requirements for a guarantor in Australia?

There are several requirements for guarantors in Australia in order to be featured on a home loan, including the following:

Stable financial position

Because lenders are assessing a guarantor on the assumption that they may be required to take on the full mortgage repayments at some point, they’ll require them to be in a strong and stable financial position. This includes a consistent, comfortable income and a strong credit history with no defaults or bankruptcies. The stronger your guarantor’s financial position, the greater your chances are of approval for a higher sum.

Own property with equity

The second key eligibility criterion is that guarantors must own property and have built sufficient equity within it to serve as security and a deposit for the applicant’s home loan. This is a crucial element of the process, as lenders are unlikely to greenlight a guarantor without having equity in property to fall back on in the event of a default.

Often below the age of 65

Because it becomes more difficult to support substantial loan repayments the older you get (with less time of your working life remaining), many lenders will be reluctant to approve older guarantors. If your guarantor is older than 65, they’ll have to show evidence that they’ll be able to take on the loan’s repayments should they be required to do so, which can come via their super or sufficient savings.

How much can I borrow with a guarantor?

Applying for a home loan with a guarantor can allow you to borrow up to 100% or more of the value of your property, depending on your own financial situation and whether your lender considers you to be capable of doing so. Because lenders see guarantors as a significant additional form of security on home loans, they’re willing to lend to first-time buyers without receiving a deposit or taking out Lenders Mortgage Insurance (LMI). This remains one of the most significant benefits of a guarantor, as LMI can cost tens of thousands of dollars.

The actual dollar amount you can be approved for with a guarantor will depend on a number of variables, such as the value of the property you’re able to buy, your financial situation and that of your guarantor and the value of your guarantor’s home equity. However, the key for borrowers looking for assistance in this area is to avoid the requirement to put down a deposit, as this often proves to be a significant roadblock for those who haven’t owned property in the past.

More questions about guarantor home loans answered

How do you remove yourself from being a guarantor in Australia?

In terms of how to remove yourself from being a guarantor in Australia, there are some situations where you may be able to request to be removed from a home loan. You may be able to do this directly to the lender, who will conduct assessments to determine whether the borrower is capable of supporting the remaining mortgage on their own.

What happens if a guarantor sells their house?

You cannot sell your home whilst serving as a guarantor if its equity is acting as security for another borrower’s home loan. It must remain under your ownership until the borrower reaches a certain loan-to-value ratio (LVR) threshold (such as 80% LVR) or is successfully able to refinance to remove you from the agreement. However, if you own multiple properties, you may be able to transfer from one to another to facilitate the sale of the original (which will also be subject to lender assessment).

Will a default affect a guarantor’s credit report?

It can – if you default on your home loan, this may have an adverse impact on your guarantor’s history also. As such, it’s important to keep ahead of your loan repayments not just for your sake but also the sake of your parent, grandparent or someone else close to you.

Does a guarantor affect my mortgage interest rate?

In most cases, yes – guarantors can have a positive impact on your mortgage interest rate as a result of the added security they bring. If you’re an applicant without a particularly strong profile (such as a lack of borrowing history or a medium to low income-earner), having a guarantor with equity in property and a more stable financial position will significantly increase the confidence your lender will have in you that the loan will be repaid.

Can my partner serve as my guarantor?

Yes – if your partner fits the criteria to qualify as a guarantor, they can be accepted by your lender as a guarantor for your mortgage. However, there may be more scrutiny on the part of the lender here, as they’ll want to avoid a situation where you and your partner separate and are left without anyone to pay the mortgage. This is unlikely, though, and you can refinance to remove the guarantor from your home loan once you’ve built equity in your property.

Am I able to remove my guarantor before I reach 80% LVR on my mortgage?

Yes – in some cases, you may be able to refinance to remove your guarantor from your home loan before you have at least 20% of your home’s value in equity. This will require you to pay LMI, however, so you should try to avoid refinancing your home loan before this point wherever possible to potentially save you thousands of dollars.

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