Removing The Guarantee
Ready to remove the guarantee? If you make repayments and reduced the size of your mortgage loan, you may remove your guarantor. It is advisable this is done at early stages so that the guarantor is not put at any risk. When the guarantee is removed, the bank will now rely on your property as security for the loan. So how do you remove a guarantee or what are the conditions that must be fulfilled for it to be removed?
When can I remove the guarantee?
You need to consider certain things for your guarantee to be removed. First being the loan amount. You were able to take 100% loan on a property without having a deposit due to the guarantee. Thus, it is necessary that when some part of your loan is settled you will not need the guarantee as the risk has reduced. This also happens when the value of your property has increased. The percentage of your property value is reduced.
How long does the guarantee last?
The guarantee lasts until the banks can approve your request to remove it. You can expect it to last for nearly five years before you are financially stable to remove it. However, this depends entirely on how quickly you can pay a portion of your loan.
What are the conditions you have to meet?
The conditions are almost similar to major financiers and lenders when dealing with guarantor loans. The guarantee can only be removed once the following conditions are satisfied.
Your loan repayments have been made on time every month for the last six months.
Your loan is less than 90% of the property value. This may be due to extra repayments or capital growth on your property value.
Your income, employment, credit history and your aspects meet the lenders policy.
Please note that the guidelines vary according to each lender from the list above.
Will I have to pay Lenders Mortgage Insurance?
When your loan is less than 80% of the property value when you remove the guarantee, you also may not pay the Lenders Mortgage Insurance (LMI) as loan that are 80% LVR are considered risky. It is advisable that you keep the guarantee until you 20% of your loan is paid. It saves a lot of money and lowers the risk of lending.
What is the process for removing the guarantee?
It is simple to remove a guarantee and in some cases, signing a form is not required. However, it involves restructuring the existing loan plan. The following steps will then apply:
Step 1- Asses your situation by contacting the lenders.
Step 2- you will be required to value your property and provide the figures
Step 3- the lender will need to approve that your loan is less than 90% of the property value.
Step 4- All the lending criteria must be met when doing internal refinance.
Step 5- if the loan is above 80% of the property value you may have to pay the Lenders Mortgage Insurance (LMI).
Step 6- On completion of the internal refinance, the guarantor agreement will be terminated.
Although it involves several steps, some lenders can release the guarantee in days. The policy differs with each bank so it is necessary to check with your bank the process involved in removing the guarantee.
Will I have to pay any fees?
There may be some government or administration fees payable which does not amount to more than $350. In case of additional charges, the lender needs to disclose them to you.