A guarantor home loan — also known as a family guarantee — allows a family member (typically a parent) to use equity in their own property as additional security for your home loan. This can eliminate the need for a deposit and remove the LMI requirement. It is one of the most effective ways for first home buyers to enter the market sooner — but it carries real risks for the guarantor that must be carefully understood.
How a Guarantor Home Loan Actually Works
In a guarantor arrangement, the borrower takes out a home loan for up to 100% (or even 105%) of the purchase price. The guarantor provides a limited guarantee — secured against equity in their own property — that covers the portion of the loan that exceeds 80% LVR. This eliminates the need for the borrower to pay LMI.
For example, if you purchase a property for $600,000 with no deposit, the loan is $600,000 (100% LVR). The guarantor provides security for the amount above 80% LVR — in this case, $120,000 (the difference between $600,000 and $480,000). The guarantor's property is used as additional security for this $120,000 portion only.
Most lenders structure the loan as two splits: the main loan (secured against the purchased property) and the guarantee portion (secured against both the purchased property and the guarantor's property). This structure allows the guarantee to be released once the borrower's equity reaches 80% LVR.
Limited vs Unlimited Guarantees
Most Australian lenders now offer limited guarantees — meaning the guarantor is only liable for a specific dollar amount, not the entire loan. Always insist on a limited guarantee and ensure your guarantor receives independent legal advice before signing.
The Real Risks for Guarantors — and How to Manage Them
The primary risk for a guarantor is that they become liable if the borrower defaults. If the borrower cannot make repayments and the sale of the purchased property does not cover the outstanding loan, the lender can pursue the guarantor's property for the guaranteed amount.
Additional risks include: reduced borrowing capacity for the guarantor (the guarantee is treated as a liability), difficulty selling or refinancing the guarantor's property while the guarantee is in place, and potential relationship strain if the arrangement becomes problematic.
To manage these risks: always use a limited guarantee (not unlimited), ensure the guarantor receives independent legal and financial advice, have a clear plan and timeline for releasing the guarantee, and consider whether the guarantor can comfortably absorb the guaranteed amount if the worst case occurs.
- ✓Guarantor becomes liable if borrower defaults
- ✓Guarantor's borrowing capacity is reduced
- ✓Guarantor may be unable to sell or refinance their own property
- ✓Independent legal advice for guarantor is essential (and often mandatory)
- ✓Limited guarantee caps the guarantor's exposure to a specific amount
When and How to Release the Guarantee
The goal for every guarantor arrangement is to release the guarantee as soon as the borrower builds sufficient equity. This typically requires the borrower's LVR to reach 80% or below — achieved through a combination of loan repayments and property value growth.
To release the guarantee, you apply to the lender with a current property valuation demonstrating that the LVR (based on the remaining loan balance against the current property value) is at or below 80%. The lender then releases the guarantor's property as security, and the guarantee obligation ends.
Timeline: most borrowers target guarantee release within 2–5 years. In a growing property market, value appreciation can accelerate this. Making extra repayments on the guaranteed portion can also reduce the timeline significantly.
Some lenders charge a fee ($200–$500) for the guarantee release process, and a new valuation may cost $300–$600. These are modest costs relative to the LMI savings achieved through the guarantee arrangement.
Accelerate Guarantee Release
Direct any extra repayments toward the guaranteed loan split first. Reducing this balance faster means you reach 80% LVR sooner and can release your parents from the guarantee obligation. Set this as an explicit financial goal.
Frequently Asked Questions
About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.