Every few months I sit down with a family where mum or dad wants to help their adult child buy a first home, and the conversation almost always starts the same way. Can they just go guarantor? The honest answer is usually yes, but it’s a decision that deserves a proper, clear eyed conversation before anyone signs anything. So let’s go through exactly how guarantor home loans work, what they actually cost each side, and where the real risks sit.
A guarantor home loan lets a family member, most commonly a parent, use equity in their own property as additional security for your loan, instead of you needing to save a full deposit yourself. According to NAB’s own guide, the guarantee usually covers the gap to a 20 percent deposit, which means if you’ve saved 5 percent yourself, your guarantor’s equity effectively covers the remaining 15 percent the lender would otherwise want to see.
It’s important to understand what this arrangement isn’t. No money changes hands between the guarantor and the lender at settlement. The guarantor isn’t lending you cash, and they’re not a co-owner of your property. Their property is simply pledged as additional security, sitting alongside your own property, until your loan reaches a point where that extra security is no longer needed.
The two main options for a buyer without a full 20 percent deposit are usually a guarantor home loan or a standard low deposit loan with Lenders Mortgage Insurance attached. A guarantor arrangement can eliminate LMI altogether, because from the lender’s perspective, the guarantor’s equity brings the effective loan to value ratio back under 80 percent, even though your own cash deposit might only be 5 or 10 percent. On a loan of any real size, that can mean avoiding a premium of anywhere from several thousand to tens of thousands of dollars, depending on your deposit and loan amount.
There’s also a borrowing power benefit for some buyers. With a strong enough guarantee, some lenders will approve a loan closer to the full purchase price, which can mean getting into the market sooner rather than spending years accumulating a larger cash deposit while property prices continue to move.
This is the part I spend the most time on with families, because it’s the part that gets glossed over far too often. According to ASIC’s Moneysmart, if the borrower can’t make their repayments, the guarantor may have to repay the whole loan plus interest, not just the portion tied to their guarantee, and if they can’t pay, the lender may repossess the asset used as security, which in a guarantor home loan is usually the family home.
Moneysmart also flags something a lot of people don’t expect. Going guarantor on a loan can affect the guarantor’s own ability to borrow later, since lenders generally require any guaranteed loans to be disclosed on future applications, even if the borrower is keeping up their repayments perfectly well. And if things do go wrong, it can show up as a default on the guarantor’s own credit report, making it harder for them personally to borrow in future.
None of this is meant to scare families away from the idea, because for a lot of people it works out exactly as planned and the guarantee is released within a few years without issue. But ASIC’s own advice is blunt about it, and I agree with the framing completely. A guarantor should treat the decision as though they’re taking out the loan themselves, not as a formality they’re signing on behalf of someone they trust.
The good news is that guarantor home loans today are rarely structured as an unlimited, open ended guarantee over the whole loan. Most lenders now offer what’s called a limited guarantee, where the guarantor’s liability is capped at a specific dollar amount, typically the gap between your deposit and the 20 percent threshold that would otherwise trigger LMI, rather than the full loan amount. This is a meaningful protection, and it’s something I always confirm in writing before any guarantor arrangement proceeds, since a full, uncapped guarantee exposes the guarantor to far more risk than most families realise they’re agreeing to.
A limited guarantee also matters because it defines exactly when the guarantor’s obligation can be released. Once your loan balance drops below roughly 80 percent of the property’s value, whether through your regular repayments, growth in the property’s value, or a combination of both, you can apply to have the guarantee released and the guarantor’s property removed as security entirely.
For the borrower. You’ll generally still need a genuine savings deposit of your own, even if it’s smaller than the standard 20 percent, plus proof of stable income and a clean credit history, since the lender is still assessing your ability to service the loan on your own merits, not relying on the guarantor to cover ongoing repayments.
For the guarantor. Lenders typically require the guarantor to own their property outright, or have substantial usable equity in it, and to be a close family member in most cases, usually a parent, though some lenders will consider other close relatives. Independent legal advice is now close to universal practice, and often mandatory, before a lender will accept the guarantee. This means the guarantor sees a solicitor who is not acting for the borrower, specifically to explain the obligation and the risks in plain terms, separate from the family relationship at play.
Beyond the paperwork, there are a few things worth discussing openly as a family before proceeding, and I raise all of these directly with clients.
Set a clear exit strategy from the start. Agree on what the plan is for releasing the guarantee, whether that’s a target loan to value ratio, a set time frame, or a certain number of years of consistent repayments, so the guarantee isn’t left as an open ended commitment with no end point in sight.
Talk through the worst case scenario honestly. What happens if the borrower loses their job, or repayments are missed for an extended period? A guarantor arrangement should be able to survive that conversation, not just the version where everything goes smoothly.
Consider a separate family agreement alongside the bank’s paperwork. A written understanding between the borrower and guarantor, covering expectations and what happens if things go wrong, can prevent a lot of difficult conversations later if circumstances change.
Be honest about the guarantor’s own future plans. If retirement, downsizing, or refinancing their own home is on the guarantor’s horizon, that timeline needs to be factored into the guarantee arrangement, since their property being tied up as security can complicate their own plans until it’s released.
It depends heavily on the family’s overall financial position and appetite for risk, on both sides. For a lot of first home buyers with a parent who has genuine spare equity and a clear willingness to help, it’s a well established, sensible way to avoid LMI and get into the market sooner. For others, particularly where the guarantor’s own financial security would be genuinely at risk if things went wrong, a standard low deposit loan with LMI, or simply waiting to save a larger deposit, can be the more appropriate path. This is exactly the kind of decision I sit down and map out properly with both generations before anyone commits to anything.
FAQs
Some lenders will consider other close relatives, such as siblings or grandparents, though parents remain the most common and widely accepted arrangement across lenders.
No, the borrower remains solely responsible for making the loan repayments. The guarantor's obligation only comes into effect if the borrower can't meet those repayments and the lender needs to recover a shortfall.
It varies, but many families see the guarantee released within a few years, once the borrower's loan to value ratio drops below roughly 80 percent through repayments and any growth in the property's value.
This can complicate things, since their property is tied up as security. It's worth discussing this possibility upfront and factoring it into the release timeline before the guarantee arrangement begins.
Most major lenders now offer a limited guarantee structure, but not universally, and terms vary. This is exactly the kind of policy difference worth checking carefully when comparing lenders for a guarantor loan.
Not necessarily, since you're still assessed on your own income and circumstances. Some lenders may apply slightly different pricing or fees for guarantor products, so it's worth comparing the full offer rather than the headline rate alone.
If you’re weighing up a guarantor arrangement, whether you’re the one buying or the one being asked to help, that’s exactly the conversation I have with families regularly, and I’d rather walk you through the full picture before anyone signs anything. Take a look at our Guarantor Home Loans page for more detail, and if a government guarantee scheme might be a better fit instead, our Low Deposit Home Loans page covers that option too.
A fast business loan can genuinely settle within 24 to 48 hours in the right circumstances, but “instant approval” in the literal sense doesn’t exist
Getting a start up business loan is harder than financing an established business, because the thing most lenders rely on most, trading history, doesn’t exist
Having bad credit makes getting a business loan harder, not impossible. Mainstream lenders rely heavily on your credit file, but it isn’t the only thing
