Can a Guarantor be removed from a Loan?

[Property WA]

Just as the title asks, can a Guarantor be removed from a loan (say 3 or 4 years down the track) when the borrow is able to prove suitable income levels and perhaps an increase in property value?

Is there any cost / issues with this?

For Eg - a mum and dad buy an IP for their child who's at Uni. They go Guarantor on the loan and rent the property out whilst the son/daughter is studying. They then boot the tenant and the child, who's now fully employed, moves in and makes it his Home (or rents elsewhere and holds it as his own IP).? The parents want to be removed from the Gurantor position as soon as this happens.

 

[Twitch]

A re-finance (or threat of one) could achieve that.

 

[Property WA]

Cheers Twitch,

So normally there'd be no charge or other issues? other than having to ensure the bank does something they can do but sometimes need motivation to do.

 

[Rixter]

Prop WA,

My bank released my wife as a guarantor on a loan a few year ago. Initially the bank required my wife as a guarantor because I used a property she had part ownership on as x-coll security against an IP purchase in my name.

A couple years later after that IP had increased in value enough I got the bank to un-xcoll and release the property. The bank amended the loan contract and sent my wife a letter stating that she was released as guarantor. No fees involved.

Hope this helps.

 

[Twitch]

A broker could answer that question for you.

My understanding is that from the banks perspective they always want 1) to hold as much collateral as they can get away with and 2) to have as many people with as much earning capacity as possible on the hook as they can get away with. They're not going to offer up to you to reduce either of those things.

A re-finance is a new loan, and a new loan is a new arrangement where the borrower can choose not to offer up extra repayment capacity in the form of guarantors if they can stand on their own feet. A re-finance swings the negotiation power back in the favour of the borrower, just going to the bank and asking for a guarantor to be removed is probably not going to cut it. Banks aren't charaties.

Edit: all this assumes the kids are on the title and the parents are not

 

[Property WA]

Twith & Rixter,

Both great replies - thanks heaps.

Perhaps I'll suggest they go straight to the source and check with the bank if this could be done in the future and then get it in writing.

 

[Spectre]

PWA

Check out some of the family pledge deals
I.e. cba
you can do the loan in kids name still studying, title in their name as well and the servicing guarantee in the name of mom and dad (and security guarantee as/if required - depends on the deposit amt)

This way they can have a house, get the gain on it and the other perks...

When the kid finishes uni, they get a job, and cba release mom and dad from the guarantee

While the child is studying, they get some mates in to pay board to help with the loan payments. Cba wont take the board into account so the deal has to service otherwise.

Or they refinance it to a new lender

I think its in the glossy brochure so you can pop into a branch.

If mom and dad do go security guarantor though, you have to bear in mind that it is VERY rare cba will do a limited guarantee though so you might be better to do a stand alone loan on M&Ds house as deposit to reduce their amount of exposure.

 

[Les]

And I just heard tonight on radio (2GB Sydney) that it is possible for a guarantor to LIMIT their exposure to a finite amount (e.g. $100k).

I'm not well versed with Guarantor status - but I hadn't heard of this possibility. Just wanted to share what might be worthwhile info.

Of course, if this is WRONG, please advise,

Regards,

 

[Spectre]

True... depends on your lender though. Some do limited's and others dont.

So when you are looking at lenders it sometimes might be a case that you take the one with less risk to the guarantor than the other.

Further (which hasnt been brought up in this post) if you are a guarantor for your kids like that and have part of their loan hanging over your house, you'd probably want to make sure whoever you've guaranteed has enough personal insurance to make sure your place isnt at risk (if you can). But thats just my 2c as sometimes people get caught up in the frenzy of the purchase but forget the 'what if' until its sometimes too late.

 

[Property WA]

Thanks lukentel and Les,

I've got my mate who works at CBA sending me the info today hopefully.

Also intertesting on the limited gurantor amounts Les, I think I'll look into that as I've not heard of it either.

 

[Olback]

Property WA,

Generally guarantors can be removed, but it depends on the lender. At CBA for example it can be removed but they charge a fee (I think it is $350) to do so.

Others lenders such as Suncorp and St.George do family guarnatees. Which are limited liability loans. CBA can also do this for you.

I hope that helps.

Thanks