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By Nojan Rahimi, principal broker at Blutin Finance — 14+ years in finance, MFAA-accredited.
Current as of June 2026.
A guarantor home loan lets a close family member, usually a parent, use the equity in their own property as extra security for your loan. That security covers the gap between your deposit and the 20% most lenders want to see, so you can buy with a smaller deposit, sometimes with little or none of your own, and usually avoid lenders mortgage insurance (LMI). You still make every repayment yourself. The guarantor simply backs part of the loan, and only for a limited amount.
It works by adding a second property as security, not by handing money to anyone.
Here is the sequence. You want to buy, but you don’t have a 20% deposit, or you have very little saved. A family member offers part of the equity in their own home as additional security for your loan. The lender now holds security over two properties, yours and theirs, which brings the combined loan-to-value ratio (LVR) to 80% or below. At that level, lenders mortgage insurance is usually waived, so you can buy sooner and without that cost.
You borrow in your own name and make all the repayments. The guarantor’s property is used only as backup security, capped at a set amount, usually the difference between your deposit and 20% of your property’s value. If everything goes to plan, the guarantee is released once your loan drops to 80% of your property’s value, through repayments, rising prices, or both.
There are two kinds of guarantee, and they do different jobs.
A security guarantee is the common one. The guarantor pledges equity in their property as extra security, which lowers the LVR and removes the need for LMI. This is what most people mean by a guarantor home loan, and it’s the structure the rest of this guide focuses on.
An income guarantee is less common. Here the guarantor’s income is counted to help meet the lender’s serviceability test, rather than, or as well as, pledging property. Fewer lenders offer this, and it raises its own questions, because the guarantor’s income is then treated as supporting your repayments. Serviceability is assessed with a buffer on top of the actual rate, which we cover in full on our LVR guide.
A family security guarantee is the most common form of security guarantee, and it’s deliberately limited.
Instead of guaranteeing your entire loan, the guarantor backs a specific, capped amount, usually the shortfall between your deposit and 20% of the purchase price. The lender takes a limited second mortgage over the guarantor’s property for that amount only. Some lenders accept a term deposit instead of property equity, which can suit a guarantor who would rather quarantine a sum of cash than put their home on the line.
This limited structure is the whole point. It lets a parent help without exposing their full home or their savings, and it gives both sides a clear, capped figure to work with.
One clarification, because the terms get mixed up. A family security guarantee is a lender arrangement. The Family Home Guarantee is a separate federal government scheme for eligible single parents, with its own rules and caps. They are not the same thing. You can check the current government schemes at Housing Australia.
Most lenders want a guarantor who is close family and financially stable.
In practice that usually means a parent, though some lenders accept step-parents, grandparents, siblings, or in limited cases other relatives, case by case. A guarantor generally needs to:
Different lenders apply different rules here. With access to 45+ lenders, we can match a guarantor’s circumstances to a lender that accepts them, rather than forcing one bank’s policy onto your situation.
This is the most important thing to understand, so here it is plainly: a guarantor is liable for the guaranteed amount only, not the whole loan.
The lender comes to the guarantor only if you can’t make repayments and, after the property is sold, a shortfall remains. Even then, the guarantor’s exposure is capped at the guaranteed amount set out in the guarantee, plus any interest and recovery costs described in that document. They are not on the hook for your entire mortgage.
That said, going guarantor is a real commitment, and the risks deserve honesty:
None of this is meant to scare anyone off. It’s meant to make sure both sides sign with their eyes open.
Real guarantor arrangements rarely look like a textbook. Three situations come up constantly.
They can often still help. The guarantee is usually set up as a limited second mortgage behind their existing home loan, so the lender needs to see how much equity is genuinely available after their current debt. Your parents declare all their existing loans, and the lender assesses whether there’s enough equity left to provide the security.
Some lenders accept retired guarantors, particularly where the guarantee is limited and the guarantor has obtained independent legal advice. Others are more cautious, because a retired guarantor may have less income to fall back on. This is exactly the kind of case where lender choice matters, and where a quick, honest assessment upfront saves everyone wasted effort.
Usually yes, with planning. Before the guarantor sells, the guarantee generally needs to be released, replaced, or refinanced. If your loan has already dropped to 80% of your property’s value, release is often straightforward. If it hasn’t, some lenders will let the guarantor substitute other security, such as a term deposit, so the sale can proceed without leaving you stranded.
The guarantee is not meant to last the life of the loan.
A guarantor can usually be released once three things are true:
The release itself is a formal step. The lender reviews your current LVR, and in many cases the guarantee is removed when you refinance or restructure the loan. If your equity has grown, refinancing can be a natural moment to release a guarantor and review your rate at the same time.
Guarantors aren’t left to fend for themselves, and this is where a lot of explainer pages go quiet.
If your loan is with a bank that subscribes to the Banking Code of Practice, the guarantee carries real protections. The current code took effect on 28 February 2025 and was strengthened in several areas, including for guarantors. Among the safeguards:
One honest caveat. These Banking Code protections apply to banks that subscribe to the code. Not every lender is a member of the Australian Banking Association, so some non-bank lenders aren’t bound by it, though consumer credit law still applies, and as brokers we’re bound by the Best Interests Duty regardless. You can read the protections in full at the Australian Banking Association.
Used well, a guarantor home loan can get you into a home years sooner. It’s worth being clear about both sides.
The benefits are real:
The trade-off is honest arithmetic. With a smaller deposit you borrow more, so even after saving LMI you may pay more interest over the life of the loan. That doesn’t make it the wrong choice. It just means the numbers matter.
It tends to suit three groups: first home buyers with stable income but not enough deposit, buyers who could keep saving but don’t want to miss a rising market, and people with strong earnings whose savings haven’t caught up yet. If a guarantor structure doesn’t actually stack up for your situation, a good broker will tell you so before you involve your family.
A guarantee is a legal commitment, so get advice before anyone signs. There are three people worth talking to, and they do different jobs.
A mortgage broker helps structure the loan and find a lender whose guarantor policy fits your circumstances. An independent solicitor explains the legal obligation the guarantor is taking on, and many lenders require proof of independent legal advice before they’ll accept a guarantee. An independent financial adviser can look at whether the guarantee affects the guarantor’s wider plans, such as retirement, since the tax and financial-planning side is their lane, not ours.
For plain-English background on going guarantor, ASIC’s Moneysmart is a good starting point.
Take Michael, a hypothetical first home buyer in Melbourne’s northern suburbs.
Michael wants to buy a $600,000 home. He has saved $30,000, which is 5%, well short of the $120,000 a full 20% deposit would need. Without help, he’d be borrowing 95% of the value and paying LMI.
His parents offer a family security guarantee. They provide $90,000 of equity in their own home as additional security, which, with Michael’s $30,000, gives the lender 20% cover. Michael borrows $570,000, the lender treats the position as 80% LVR, and LMI is avoided.
Michael makes every repayment himself, and still budgets for upfront costs like stamp duty, which he checks using our stamp duty calculator. A few years on, after steady repayments and some growth in his property’s value, his loan falls to 80% of the home’s value, and his parents are released from the guarantee.
A guarantor home loan is a loan where a family member uses equity in their own property, or sometimes a term deposit, as additional security, so you can buy with a smaller deposit. Because the extra security brings the loan to 80% or less of the combined value, you usually avoid LMI. You still borrow in your own name and make every repayment. The guarantor backs only a limited, agreed amount.
With a guarantor, some lenders will lend up to around 100% to 105% of the property’s value, and a few go higher to help cover costs like stamp duty, depending on the lender and the purpose. It’s not a universal rule, and it varies between lenders. What you can actually borrow still depends on your income, expenses, existing debts, and the lender’s serviceability test. A borrowing power calculator gives you a rough starting point, and a broker can confirm it against real lender policies.
The guarantor is liable for the guaranteed amount only, not the whole loan. If you miss repayments, the lender works with you first, and the best move is to contact their hardship team early. If the loan can’t be brought back on track and the property is sold for less than the balance, the lender can call on the guarantee, but only up to the guaranteed amount plus any interest and recovery costs set out in it. The guarantor is never automatically responsible for your entire mortgage.
Not quite. Some lenders market guarantor loans as “no deposit” because you may not need savings of your own. But it isn’t unsecured, because the lender still relies on the guarantor’s equity as security. The deposit gap is covered by the guarantee, not waived.
A guarantor strengthens your application in two ways. The extra security lowers the LVR, which removes the need for LMI and can open up better-priced loan tiers. It can also help you qualify sooner, because you’re no longer held back by a small deposit. The lender still assesses your income and ability to repay.
Yes. A guarantee is one option, not the only one. Family can gift a deposit (lenders usually want a letter confirming it isn’t a loan), come on as a co-borrower (which puts them on the title and the full loan, unlike a limited guarantee), or you might stay at home longer to save a larger deposit. Government low-deposit schemes are another path worth checking. Each has trade-offs worth talking through.
The guarantee doesn’t simply vanish. What happens depends on the loan contract and the guarantor’s estate, and lenders handle it differently. In many cases the guarantee continues against the estate until it’s released under the normal conditions, or until you refinance to remove it. It’s a question worth asking your lender or broker upfront, so there are no surprises.
Thinking about a guarantor arrangement? We work across 45+ lenders and will give you a straight answer on whether it fits your situation, before anyone signs. Call 1300 188 808 or book a 30-minute first meeting. No obligation, no fee, no paperwork before the call.