What Is a Guarantor? How Guarantor Home Loans Work in Australia

A guarantor is a family member who puts their own property up as extra security so you can buy with a small deposit, or none at all. Their home covers the gap between what you have saved and what the lender wants to see. For a lot of first home buyers in Australia it is the difference between buying this year and waiting another five.

It also puts a family member’s house behind your loan. That part deserves a proper look before anyone signs anything.

What is a guarantor?

A guarantor agrees to cover part of your home loan if you stop paying it. They do that by offering equity in their own property as additional security. The lender registers a second mortgage over the guarantor’s home for a set amount, and that amount is the limit of what they are on the hook for.

Nine times out of ten it is a parent. You will see the arrangement called a family guarantee, a family pledge or a security guarantee. Same structure, different marketing names.

Here is the bit people get wrong: a limited guarantee covers a capped figure, not the whole loan. If the guarantee is set at $195,000, that is the maximum exposure, even on an $800,000 mortgage.

How a guarantor home loan works

Lenders want a home loan sitting at 80% or less of the property’s value. Above that line they charge Lenders Mortgage Insurance, or they say no. A guarantee closes the gap with someone else’s equity instead of your savings.

Take an $800,000 purchase. You have $40,000 saved, and stamp duty plus legals come to roughly $35,000, so you need to borrow about $795,000. For that loan to sit at 80%, the lender needs close to $995,000 of property behind it. Your place is worth $800,000. Your parents guarantee the missing $195,000 against their home.

From settlement there are two mortgages: yours over your property, and a limited second mortgage over your parents’ property for $195,000. You make every repayment. They do nothing at all unless you stop.

Who lenders will accept as a guarantor

Policy varies far more than most people expect. Broadly, a guarantor needs to:

• be a parent. Some lenders stretch to grandparents, siblings, or a child guaranteeing a parent, but the list gets short fast
• own property in Australia with enough usable equity. An existing mortgage over it is fine
• have a clean credit file with no arrears. If there is a blemish, a broker who handles credit-impaired files will know which lenders still look at it
• take independent legal advice. Most lenders now require it and will not waive it
• show how the guarantee ends if they are retired or near it. Past about 65 a few lenders want that written down

Retired parents who are asset rich and income poor are not automatically out. Several lenders assess a security guarantee on equity alone and never touch the guarantor’s income. Worth having someone check lender policy before a form gets filled in, which is what a good broker in Sydney or Melbourne does in about ten minutes.

The three kinds of guarantee

Security guarantee

The common one. Your parents pledge equity, and nothing else. Their income is not assessed, they are not on your loan, and their exposure stops at the guaranteed figure. This is what most families end up with.

Security and income guarantee

The lender uses the guarantor’s income as well as their equity. It comes up when the borrower’s income is thin or newly established, such as a recent graduate on a first full-time salary. It is harder to get and fewer lenders offer it, because the guarantor is now backing repayments, not just the security.

Family guarantee over part of the price

A capped pledge covering a nominated slice of the purchase, usually around 20% plus costs. It behaves like a security guarantee with the number written into the loan documents from day one, which makes the exit clearer for everyone.

What a guarantee actually saves

Two things. The first is LMI. On an $800,000 purchase with a 5% deposit, Lenders Mortgage Insurance commonly lands between $25,000 and $35,000, and on a 10% deposit somewhere around $12,000 to $20,000 depending on the lender and insurer. A guarantee removes that premium entirely.

The second is the interest rate. Once the loan is structured at 80% or below, you are priced as a low-risk borrower rather than a high-LVR one. The gap between those two tiers is often 0.15% to 0.40%. On $795,000 that is real money every month for the life of the loan.

What the guarantor is risking

If you default and the lender cannot recover the shortfall from your property, it can call on the guaranteed amount. In the worst case that means the guarantor sells or refinances their own home to pay it. Rare, but it is the actual risk and it should be said plainly.

The quieter cost is the one families overlook. While the guarantee is live it shows on the guarantor’s file as a contingent liability. It cuts their own borrowing power, it complicates selling or refinancing their home, and it can hold up a downsize. If your parents plan to move within a few years, raise that now rather than in year three.

Getting the guarantee released

The guarantee comes off when your loan drops to 80% or less of your property’s value on its own. Repayments get you there. So does price growth, and so does a lump sum.

On the example above, the loan needs to reach about $640,000, or the property needs to be revalued high enough to do the same job. Most families land somewhere in the three to six year range.

It does not happen by itself. You apply, the lender orders a valuation, and the second mortgage is discharged. Some lenders charge a small discharge or valuation fee. If you are refinancing anyway, do the release at the same time and pay for one valuation instead of two. Put a diary note in for the two year mark and check where the numbers sit.

Guarantor loan, or the government’s 5% deposit scheme?

This question did not really exist two years ago. It does now. Since 1 October 2025 the federal 5% deposit scheme, formerly the First Home Guarantee, has run with no income caps and no limit on places, and the government guarantee replaces LMI. Price caps still apply: $1.5m in Sydney and $800,000 for the rest of NSW, $950,000 in Melbourne, $1m in Brisbane and the ACT, $900,000 in Adelaide, $850,000 in Perth, $750,000 in Darwin and $700,000 in Hobart.

If you are a first home buyer, buying under the cap and eligible, the scheme usually beats a family guarantee. Nobody’s house is involved. A guarantee still wins where you are over the price cap, buying an investment property, not a first home buyer, or you need more than 95% including costs. Our rundown of first home buyer incentives covers what else you may be entitled to on top.

What the guarantor has to hand over

Less than most people fear. A security guarantee usually needs:

• photo ID
• a recent rates notice for the property being used
• a current mortgage statement, so the lender can work out the available equity
• a signed solicitor’s certificate confirming they took independent legal advice

Payslips and tax returns only come into it where the lender is assessing the guarantor’s income as well, which a plain security guarantee does not do. There will also be a valuation on the guarantor’s property, usually paid for by the borrower.

If nobody can go guarantor

Plenty of buyers get there without one.

• Pay the LMI. It is a cost, not a wall, and in a rising market the delay to save another 10% can cost more than the premium
• Buy with a partner, sibling or friend on a written co-ownership agreement, with an exit clause in it
• Lift what you can borrow instead of what you have saved. Clearing a car loan or cutting a credit card limit often moves the number more than another six months of saving, which we cover in how to increase your borrowing capacity
• Buy an investment property first and keep renting where you live. Some buyers find it gets them into the market years earlier, and the trade-offs are in our property investment guide
• Take a gift instead of a guarantee. A gifted deposit needs a signed letter saying it is not repayable, and it puts no mortgage over anyone’s home

A broker who writes guarantor loans regularly will tell you in one conversation which of these fits your situation, and which lenders will actually do it. Match me with a mortgage broker, or compare the top brokers in your city.

“The conversation that matters is the one with the parents, not the buyer. They want to know what happens if it goes wrong and how they get out of it. Once they see the guarantee is capped at a set figure and can be lifted in a few years, it stops feeling like they are signing their house away.”

Mary Nebotakis

CEO and Managing Director, Natloans