What a "letter of variation" actually is

A letter of variation (sometimes called a deed of variation or variation agreement) is a short document that amends an existing loan or guarantee. Rather than discharging the original facility and writing a new one, the bank issues a letter that changes specific terms — usually one or two — while leaving the rest of the documents intact.

Common things varied through this route:

  • Loan amount (top-up or extension of an existing facility).
  • Loan term (extension past the original maturity).
  • Repayment structure (interest-only to principal & interest, or vice versa).
  • Security property (adding or substituting a property).
  • Guarantors (adding, removing, or substituting).
  • Borrower entity (less common — usually requires a new facility instead).

When a variation triggers fresh ILA

The rule of thumb: if the variation materially changes the guarantor's exposure, fresh ILA is needed. Practical tests most banks apply:

  • Increase in the loan amount. Almost always triggers fresh ILA from any guarantor whose guarantee is uncapped or capped at the new higher amount.
  • Extension of term past retirement age for a guarantor. Banks treat this as a material change and require new ILA.
  • Addition of a new guarantor. The new guarantor needs ILA. The existing guarantor often does too, because their joint and several exposure changes.
  • Substitution of security property. Where a guarantor's property is being swapped out for a different one, fresh ILA is usually required. Refinancing scenarios often hit this one.
  • Conversion of a guarantee from limited to unlimited, or removal of a cap. Always triggers fresh ILA.

What usually doesn't require fresh ILA:

  • A rate or repayment-type change with no impact on principal.
  • A reduction in the loan amount.
  • A change of repayment frequency.
  • A name correction or address update.

The variation letter itself will usually tell you whether ILA is conditional on the bank's acceptance. If it is, treat that as the controlling answer regardless of what the rules of thumb above suggest.

Why banks care so much about this

The case law on guarantor enforceability is unforgiving. A guarantee given on the basis of one set of facts — say, a $500,000 loan over 25 years — isn't necessarily enforceable for a different set of facts — say, a $750,000 loan over 30 years. If the variation materially changes the underlying obligation, the bank wants fresh evidence that the guarantor understood the new arrangement.

Fresh ILA is the cleanest way to get that evidence. The alternative is for the bank to take the risk that a court might later find the original advice didn't cover the variation. Banks don't take that risk on anything significant.

What the fresh ILA meeting covers

A variation ILA appointment is usually shorter than an original one — typically 20 to 30 minutes — because the guarantor already understands the underlying structure. The solicitor will focus on:

  • What's changing, in dollar and time terms.
  • How the guarantor's exposure differs from the previous version.
  • Whether the original guarantee is being discharged and replaced, or just amended.
  • Any new clauses (such as different default triggers) introduced by the variation.
  • The path forward if the guarantor wants to push back on any part of the variation.

You'll sign the variation document at the meeting, the solicitor will sign the new ILA certificate, and the originals go back to the bank.

Fees and timing

Some providers charge less for variation ILA than for original ILA, on the basis that the appointment is shorter. ILA Online charges the same fixed fee — $550 inclusive of GST — to reflect the document review and certificate work, but the appointment slot is shorter.

Variations have less time pressure than purchases — there's no settlement date — but banks usually want the certificate within a stated window after the variation letter is issued. Two weeks is typical; some banks set 30 days. Read the variation letter for the deadline and book early.

Your next step

If you've received a letter of variation that requests an updated ILA certificate, send it to your solicitor along with the original guarantee for context. The basics still apply — see what is an ILA certificate if you'd like a refresher. The solicitor will compare the documents and run a focused meeting on what's changed.

General information only. This article gives general guidance for Australian borrowers and guarantors. It is not legal advice and does not consider your individual circumstances. Lender, state and witnessing rules change — confirm with your broker or solicitor before signing.