Refinancing with a guarantor or co-borrower: when ILA is required

When refinancing triggers ILA

Not every refinance needs ILA. A clean borrower-only refinance from one bank to another, with no change to who's on the loan and no guarantor involved, usually doesn't. But several common scenarios do:

• The loan moves to a new lender and a guarantor is involved. The new lender is taking the guarantee fresh — it's not a continuation of the old loan. They'll want their own ILA certificate.
• A new guarantor is being added. Maybe one parent has died and the other is being asked to re-execute the guarantee in their own name, or a new family member is stepping in. New guarantor, new ILA.
• A spouse or co-borrower is being added or removed. Separations, property settlements, business changes — any change to who's on the loan often triggers ILA for any non-borrowing party still involved as security.
• The loan structure changes materially. Moving from individual borrowing to a trust, or from a regular loan to an SMSF LRBA, almost always triggers ILA.
• Top-up borrowing on a guaranteed loan. If the borrower is increasing the loan amount, the guarantor's exposure changes too. The bank will usually want a fresh certificate covering the new total — this is the classic letter of variation scenario.

When refinancing doesn't trigger ILA

Plenty of refinances are ILA-free. The clearest cases:

• A simple rate refinance, same borrowers, no guarantor. A standard "switch banks for a better rate" deal with the same names on the loan.
• An internal product switch with the same bank. Moving from a variable rate to a fixed rate, or moving onto a different product range, often doesn't trigger fresh ILA even if a guarantor is on the loan.
• A discharge with no new loan. Selling the property and paying out the loan doesn't need ILA — the lawyers handle the discharge through ordinary conveyancing.
• Refinancing onto a borrower-only loan to release a guarantor. If the whole point of the refinance is to discharge the guarantee, the guarantor doesn't need new ILA — they're being released, not signing fresh obligations.

If you're unsure, the bank's loan offer will say. Look for the conditions precedent section: if ILA is required, it'll be listed there.

Refinancing to release a guarantor

One of the most common reasons to refinance is to release a parent guarantor. The borrower has built up enough equity (through repayments or property appreciation), the loan-to-value ratio is comfortably under 80%, and the family wants the parent's house off the bank's books.

This can be done two ways:

1. In-bank release. The current bank discharges the guarantee without a refinance. Usually the cleanest option — no new application, no new credit assessment, no new loan documents. The bank requires a formal request and confirms the borrower's current loan position is strong enough.
2. External refinance. The borrower refinances to a new bank, on a standalone basis (no guarantor). The new loan pays out the old one, the old bank discharges, and the parent's second mortgage falls away.

Option 1 doesn't need ILA. Option 2 doesn't need ILA from the guarantor (they're being released), but might involve a small administrative step for the borrower depending on the new lender's policy.

If you're at this stage, talk to your broker about which path is easier. Sometimes the in-bank release is faster; sometimes a refinance gets you a better rate and a release in one move. For context on the original guarantee step, see going guarantor for your child's home loan.

Documents you'll need for refinance ILA

If ILA is needed on the refinance, the document pack looks much like a fresh purchase:

• The new lender's loan offer or letter of variation.
• The new mortgage to be signed.
• The new guarantee document, if applicable.
• For SMSF refinances: the SMSF deed and bare trust deed.
• Your photo ID.

You don't usually need to bring documents from the existing loan — the new lender has done their own due diligence on the property and existing debt position before issuing the offer. The ILA appointment is only about the new documents.

Common refinance scenarios and what they need

Three patterns we see often:

"My parents went guarantor 5 years ago. I want to refinance to a cheaper bank." Usually one of two outcomes: either you've built enough equity to refinance without the guarantee (no ILA needed for parents; they're released) or the new lender wants the guarantee to continue, in which case parents will need fresh ILA from the new bank's perspective. Most clean rate-shopping refinances fall into the first category.

"We're divorcing. One of us is being removed from the loan." The remaining spouse will refinance the loan into their sole name. The departing spouse is typically released by the bank; the remaining spouse may need their own ILA depending on whether a new guarantee is being put in place to support the solo borrowing. Property settlement orders or a binding financial agreement usually accompany this.

"We're moving the loan from individual names to a trust." Almost always needs fresh ILA for the trustees, especially if directors are signing in their personal capacity. Treat this like a new transaction, not a refinance.

How to keep the refinance moving

Refinances run on a clock. The existing bank wants the loan discharged on a specific day, the new bank wants funding on the same day, and ILA is usually the last variable. Three tips to keep things smooth:

1. Read the new bank's loan offer carefully. ILA requirements are always listed in the conditions precedent. Know whether you need one appointment, two, or none.
2. Book the appointment as soon as the loan offer arrives. Don't wait for the broker to chase. Two weeks before settlement is comfortable; one week is fine; less than 48 hours is when stress starts.
3. Have all guarantors lined up. If both parents need to attend, sync their calendars before booking. Refinances sometimes get held up because one guarantor is overseas.