Buying sooner
Why do people use a guarantee?
It can remove the need to save a full deposit, which in a rising market is often the difference between buying now and buying considerably later at a higher price.
GUARANTOR LOANS
When family equity replaces a bigger deposit
A guarantee can get a buyer in years earlier. It also puts a family member's property at stake, so both sides need to understand it properly.
IN SHORT
A guarantor offers equity in their property as additional security
In the most common arrangement — a security guarantee — a family member allows part of the equity in their own property to be used as extra security for your loan. That lifts the total security value, which can reduce or remove lenders mortgage insurance and let you buy with a smaller cash deposit.
The guarantor is not usually giving you money, and is not normally responsible for your day-to-day repayments. They are, however, accepting a real and enforceable liability limited to the guaranteed amount if the loan defaults.
Most lenders will only accept close family, and most require the guarantor to obtain independent legal advice before signing.
WHY IT HELPS
What a guarantee changes
Avoiding LMI
Can it remove mortgage insurance?
Because the guarantee lifts total security, the effective loan-to-value ratio can drop below the threshold where LMI applies, saving a substantial one-off premium.
A defined exit
Does it last forever?
No. Once the loan balance falls far enough against the value of your own property, the guarantee can usually be released and the family property freed.
HOW IT WORKS
What the guarantor is actually signing
This is the part that deserves a slow conversation. A guarantee is a legal obligation, not a gesture of support, and it can affect the guarantor's own borrowing capacity while it remains in place.
- The guarantee is normally limited to a specified amount, not the whole loan
- The guarantor's property carries a mortgage or charge for that amount
- It can reduce what the guarantor is able to borrow themselves
- If the loan defaults, the lender can call on the guarantee
- Release is possible once the borrower's own equity is sufficient
IS IT RIGHT FOR YOU
Making a guarantee work sensibly
This tends to suit you if
- The borrower services the loan comfortably — a guarantee should solve a deposit gap, not a capacity gap.
- The guarantor has clear equity — and preferably a small or fully repaid mortgage of their own.
- There is a plan to release it — with a rough timeframe everyone agrees on up front.
- Everyone has independent advice — legal for the guarantor, and ideally a family conversation first.
Worth weighing up
- The guarantor's home is at risk — if the loan defaults, the guaranteed amount can be enforced against it.
- It affects the guarantor's own plans — their borrowing capacity is reduced while the guarantee stands.
- Relationships carry the strain — consider what happens if circumstances change for either household.
- Release is not automatic — it depends on values and balances reaching the required level.
How working with us actually goes
Step 1
We start with a conversation, not an application
Step 2
We work out what you can borrow and what it costs
Step 3
We prepare the application and deal with the lender
Step 4
We stay across the loan long after settlement
COMMON QUESTIONS
Questions we get asked about this
Who can be a guarantor?
Most lenders limit guarantors to immediate family — usually parents, and sometimes siblings or grandparents depending on the lender.
The guarantor generally needs to own property with sufficient equity, and lenders will consider their age and financial position as part of the assessment.
Is the guarantor responsible for my repayments?
Not in the normal course. Under a security guarantee, the borrower makes the repayments and the guarantor's obligation only arises if the loan defaults and the lender cannot recover the full amount.
The guarantee is usually limited to a specified sum rather than the whole debt, which caps the exposure.
When can the guarantee be released?
Once your loan balance has fallen sufficiently relative to the value of your own property — often when it reaches the point where the loan would have been acceptable without a guarantee in the first place.
That can come from repayments, from growth in value, or both. It generally requires a valuation and a formal application to the lender.
What if my parents still have a mortgage?
That is common and not necessarily a barrier. What matters is the equity available in their property after their own loan is accounted for.
Some lenders will accept a guarantee where the guarantor's mortgage is with a different lender; others prefer it to sit with them. Policy varies.
What should a guarantor do before signing?
Get independent legal advice — most lenders require it. Understand the guaranteed amount, when it can be called on, and what has to happen for it to be released.
It is also worth the two households having a frank conversation about what happens if someone loses a job, separates, or wants to sell.
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GET IN TOUCH
Find out where you stand before you commit to anything.
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(02) 9659 1694Important information
The information on this page is general in nature. It has been prepared without taking your objectives, financial situation or needs into account, so it is not personal advice and you should consider whether it is appropriate for you before acting on it.
Any rates, figures or examples shown are indicative only. Lending is subject to approval, and lender eligibility criteria, terms, conditions, fees and charges apply. Talk to us about what your own circumstances allow.