Guarantor home loans

How does a guarantor home loan work?

A guarantor home loan, often called a family guarantee or family pledge, uses equity in a family member's property as additional security for your home loan. The guarantor does not lend you money, co-sign the loan, or appear on the title of your new property. Instead, their property is offered as a limited guarantee that tops up your deposit to an effective 20% or more, allowing you to avoid LMI entirely.

The loan is split in two

The loan is typically structured as two separate portions. The first is a standard home loan covering up to 80% of your property value, which carries the best available interest rate and is secured solely against your new property. The second is the guaranteed portion, covering the remaining balance (the gap between your deposit and 20%). This portion is secured by both your property and the guarantor's property.

How much the guarantor is exposed to

This structure means the guarantor's exposure is limited to the guaranteed amount only, not your entire loan. If your property is worth $700,000 and you have a $35,000 deposit (5%), the guaranteed portion is approximately $105,000 (the difference between your 5% deposit and the 20% needed to avoid LMI). The guarantor is only at risk for this $105,000, not the full $665,000 loan.

Which lenders offer family guarantees, and what do they publish?

Every major bank offers a version, under different names. The structures are similar; the published detail on what the guarantee can cover and when it is released is where they differ. Checked against each lender's published product page on 19 September 2026. Terms change without notice; confirm the current position with the lender or your broker before relying on it. Where a lender does not publish a figure the cell says so.

What are the benefits of a guarantor loan?

The advantages of a guarantor arrangement extend well beyond simply avoiding the deposit barrier. Understanding the full range of benefits helps you appreciate why this structure has become so popular among first home buyers and their families.

No lenders mortgage insurance

LMI on a $700,000 property with a 5% deposit can cost $25,000 to $35,000. With a guarantor, this cost is eliminated entirely because the guarantee effectively creates a 20%+ security position. This saving alone can be the equivalent of several years of additional saving.

Enter the market sooner

In a rising property market, the time spent saving for a 20% deposit can be counterproductive. If property prices increase by 5% per year and you need three more years to save a full deposit, you could find yourself chasing a moving target. A guarantor loan lets you enter the market now and benefit from price growth rather than being disadvantaged by it.

Standard interest rates

Unlike low deposit home loans that attract higher rates or LMI premiums, a guarantor loan typically qualifies for the same competitive interest rates as a borrower with a 20% deposit. There is no rate penalty for using a guarantor.

No money changes hands

Unlike a cash gift from parents (which may have implications for Centrelink and tax), providing a guarantee does not involve any transfer of money. The parents retain full ownership and use of their property. No stamp duty, capital gains, or gift complications arise.

What are the risks for the guarantor?

Being a guarantor is a serious financial commitment, and it is essential that both the borrower and guarantor fully understand the risks involved. While the risk is limited and the arrangement is temporary, the potential consequences of default must be considered.

If the borrower defaults

If the borrower defaults on the loan and the lender is unable to recover the full amount from selling the borrower's property, the lender can call on the guarantee. In the worst case, this could mean the lender places a caveat on or seeks to sell the guarantor's property to recover the guaranteed amount. However, this scenario is extremely rare and involves multiple steps before reaching that point.

How the risk is limited

To manage this risk, the guarantee should be structured as a limited guarantee (which it is in standard family guarantee products) capping the guarantor's exposure to a specific dollar amount. Both parties must receive independent legal advice before signing, ensuring the guarantor fully understands their obligations. The borrower should maintain adequate income and expense buffers, and both parties should have appropriate insurance in place.

When can the guarantor be released?

A guarantor arrangement is designed to be temporary. The goal is to release the guarantor as soon as the borrower builds sufficient equity to stand on their own. This typically happens when the loan-to-value ratio reaches 80% or below, the same threshold at which LMI is no longer required.

How equity builds

Equity builds through three mechanisms: regular loan repayments that reduce the principal balance, extra repayments that accelerate principal reduction, and property value appreciation. In practice, most borrowers can release their guarantor within 2-5 years, depending on the initial LVR and the rate of property value growth.

A worked example

For example, if you purchase a $700,000 property with a $665,000 loan (95% LVR), you need to reduce the loan to $560,000 (80% LVR) to release the guarantor. Through regular repayments over 3 years, you might reduce the balance by approximately $20,000 to $645,000. If the property has also appreciated by 5% to $735,000, your LVR is now $645,000 / $735,000 = 87.8%. Adding some extra repayments or waiting for a bit more growth would get you to the 80% threshold.

How the release works

A good broker tracks your equity position and prompts the release as soon as you qualify; you can also ask the lender for a review at any time. The release involves a formal property valuation to confirm the current value and a partial discharge of the guarantor's mortgage from the guaranteed portion of your loan.