What is guarantor release and under what conditions might it occur?

• A. Releasing the guarantor from further liability after the loan-to-value ratio or repayment milestones are met and LVR criteria satisfied.
• B. The guarantor can be released only if the borrower fully repays without any analysis.
• C. Guarantor release occurs automatically after the first year.
• D. Guarantor release requires the borrower to switch to an unsecured loan.

Answer: (A)

Guarantor release is about reducing or removing the guarantor’s liability on a loan once the loan has become sufficiently low risk for the lender. This typically happens when the borrower has built enough equity and the loan performance meets the lender’s criteria. The key conditions usually involve the loan-to-value ratio being within a defined threshold and the borrower reaching specified repayment milestones, showing the loan is well-secured and performing as agreed. Because risk levels can change as the loan progresses, lenders generally require a formal review or application, sometimes a property revaluation, and confirmation that the loan still meets serviceability standards before releasing the guarantor.

This is not an automatic event after a fixed time, nor is it triggered simply by full repayment without any assessment. It also does not require the borrower to switch to an unsecured loan. The correct idea is that the guarantor is released once the LVR criteria and relevant repayment milestones are satisfied and the lender’s policy allows it.