Who can be a guarantor on a home loan?

Most lenders require the guarantor to be an immediate family member — typically a parent, though some lenders accept siblings, grandparents, or de facto partners. The guarantor must own property with sufficient equity and be able to demonstrate they can service their own debts. Most lenders do not accept friends or non-family members as guarantors.

Does the guarantor need to make any loan repayments?

No. The borrower is solely responsible for all loan repayments. The guarantor only becomes liable if the borrower defaults and the sale of the borrower's property does not cover the outstanding debt. The guarantee is a security arrangement, not a repayment arrangement.

Can a guarantor be released if property values fall?

It becomes harder. To release the guarantee, your LVR needs to be at or below 80%. If your property value drops, your LVR increases, which may delay the release. In this scenario, you can accelerate release by making extra repayments or waiting for the market to recover.

What is the difference between a limited and unlimited guarantee?

A limited guarantee caps the guarantor's liability at a specific dollar amount — usually just enough to cover the gap between your deposit and 20%. An unlimited guarantee makes the guarantor liable for the entire loan. Almost all Australian lenders now offer limited guarantees only, and borrowers should never accept an unlimited guarantee.

What is a Guarantor Home Loan? | Realestate Lens

Definition

Guarantor Home Loan

A guarantor home loan is a mortgage where a family member (usually a parent) offers their own property as additional security for your loan. This allows the borrower to purchase with a smaller deposit — often as little as 5% or even zero — without paying Lenders Mortgage Insurance (LMI).

In Australia, guarantor home loans — also called family guarantee loans or family pledge loans — have become one of the most popular ways for first home buyers to enter the property market sooner. With median house prices in Sydney and Melbourne well above $900,000, saving a 20% deposit can take a decade or more. A family guarantee lets you bridge the gap using equity your parents have already built.

How a Guarantor Home Loan Works

1
Borrower applies for a home loan
You apply for a mortgage in your name. The lender assesses your income, expenses, and borrowing capacity as they normally would. You still need to demonstrate you can afford the repayments.
2
Guarantor offers security
A family member (typically a parent) offers a portion of the equity in their own property as additional security. They do not hand over cash — their property is used as collateral for the shortfall between your deposit and the lender's required security.
3
Limited guarantee is established
Most lenders structure the guarantee as a limited guarantee — the guarantor is only liable for a specific dollar amount (usually enough to bring your effective LVR to 80% or below), not the entire loan. This protects the guarantor from being exposed to your full debt.
4
Loan is approved without LMI
Because the combined security (your deposit plus the guarantor's equity) reduces the LVR to 80% or below, the lender waives Lenders Mortgage Insurance. This can save you $10,000 to $40,000 or more depending on your loan size.
5
Guarantee is released over time
Once you have built enough equity — typically when your loan balance drops below 80% of the property's value — you can apply to release the guarantor. This frees the guarantor's property from any obligation. Most borrowers aim to release the guarantee within 2 to 5 years.

Benefits of a Guarantor Home Loan

Buy sooner: Enter the property market years earlier than if you needed to save a full 20% deposit.
Avoid LMI: Save thousands (or tens of thousands) in Lenders Mortgage Insurance premiums that would otherwise be required with a deposit under 20%. Learn more about how LMI works and how to avoid it.
Borrow up to 100% or more: Some lenders allow guarantor loans with no deposit at all, or even borrowing above the property value to cover stamp duty and legal costs.
Start building equity now: Every year you spend renting instead of owning is a year you miss out on potential capital growth.

Risks for the Guarantor

Being a guarantor is not without risk. It is essential that both the borrower and guarantor understand the obligations before proceeding.

Liability if the borrower defaults: If the borrower cannot make repayments and the property sells for less than the outstanding loan, the lender can pursue the guarantor for the guaranteed amount — potentially forcing the sale of the guarantor's property.
Reduced borrowing capacity: The guarantee is recorded as a contingent liability on the guarantor's credit file, which may reduce their ability to borrow or refinance their own property.
Relationship strain: Financial arrangements between family members can create tension, especially if the borrower faces financial difficulties.

Most lenders require the guarantor to receive independent legal advice before signing. This ensures the guarantor fully understands their obligations and is not acting under pressure.

Exit Strategy: Releasing the Guarantee

The guarantee is not permanent. You can apply to release it once your loan-to-value ratio (LVR) drops to 80% or below — through a combination of loan repayments and property value growth. Common ways to reach this threshold include:

Making regular repayments that reduce the loan principal over time
Making extra repayments or keeping money in an offset account
Property value appreciation (you may need a formal bank valuation to prove this)
Refinancing to a new lender at a lower LVR once you have sufficient equity

Use our borrowing capacity calculator to estimate how much you can borrow with or without a guarantor.

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