If you’ve used a guarantor to help you buy your home, you might be wondering: how long does a guarantor stay on a mortgage? In Australia, a guarantor usually remains on the loan for several years, but the exact timeline depends on how quickly the borrower builds equity in the property.
Whether you’re a first home buyer or a family member acting as guarantor, it’s important to understand how long the obligation lasts, what conditions must be met for removal, and how the release process works.
What Is a Guarantor Mortgage?
A guarantor mortgage allows someone else—typically a parent or close relative—to offer their property equity as security for your home loan. This can be especially helpful if you don’t have a 20% deposit or want to avoid paying Lenders Mortgage Insurance (LMI).
The guarantor isn’t responsible for making loan repayments unless the borrower defaults, but they are legally tied to the loan during the guarantee period. That’s why understanding how long a guarantor stays on a mortgage is critical before entering into such an agreement.
How Long Does a Guarantor Stay on a Mortgage?
In most cases, a guarantor stays on a mortgage until the borrower’s loan-to-value ratio (LVR) drops below 80%. This can take anywhere from two to five years, depending on the borrower’s repayment habits and how much the property increases in value.
If the borrower makes extra repayments or the property appreciates quickly, the guarantor may be released sooner. On the other hand, if the LVR stays above 80%, the guarantor will need to remain on the loan until the equity position improves.
What Factors Affect the Time a Guarantor Stays on a Mortgage?
Several factors can influence how long a guarantor stays on a mortgage:
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Loan repayments: Making regular additional repayments helps reduce the loan balance faster, lowering the LVR.
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Property value growth: If the home’s value increases over time, equity builds naturally, reducing the need for a guarantor.
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Lender policies: Some lenders have stricter rules around when they’ll allow guarantor removal, even if the LVR reaches 80%.
How to Remove a Guarantor from a Mortgage
Removing a guarantor requires a formal process. Once the borrower has built sufficient equity and is in a strong financial position, they can apply to release the guarantor. The steps typically include:
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Obtaining a property valuation to confirm the LVR is under 80%
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Demonstrating consistent repayment history and financial stability
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Submitting a request to the lender for guarantor release
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In some cases, refinancing the loan without the guarantee
It’s important to note that the lender must approve the request. The guarantor’s liability does not end automatically once certain milestones are reached—it needs to be formally assessed and confirmed.
Can a Guarantor Be Removed Early?
Yes, a guarantor can be removed earlier than expected if the borrower quickly meets the lender’s equity and risk criteria. This often happens if:
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The borrower receives a financial windfall and pays down the loan
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The property value increases substantially in a short time
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The borrower refinances with another lender who doesn’t require a guarantee
Even with these options, the key factor remains the LVR. Until that drops below 80%, the guarantor is likely to remain attached to the loan.
Risks for the Guarantor
If you’re considering becoming a guarantor, it’s important to understand the risks. Should the borrower default, the guarantor is legally responsible for the guaranteed portion of the loan. This could result in legal action or even forced sale of the guarantor’s property in extreme cases.
Being a guarantor can also impact your own borrowing capacity, as lenders will factor in your potential liability when assessing other loan applications. That’s why it’s strongly recommended that potential guarantors seek independent legal and financial advice before agreeing to anything.
Final Thoughts
So, how long does a guarantor stay on a mortgage? Typically between two and five years, depending on how quickly the borrower can reduce the loan-to-value ratio to below 80%. With strong repayments, rising property values, and the right lender support, it may be possible to remove a guarantor sooner.
If you’re considering using or becoming a guarantor, it’s crucial to fully understand the responsibilities involved. A mortgage broker or financial adviser can help assess your situation and determine a path forward—whether that’s structuring the loan properly from the start or preparing for a smooth guarantor release down the track.
