Guarantor home loans: the risk first, then how it works
A guarantor home loan lets a family member, usually a parent, use the equity in their own home as extra security for your loan, so you can buy with a smaller deposit and often avoid lenders mortgage insurance. They don't hand over cash or make your repayments. But they promise to pay a set amount if you can't, and their home secures that promise.
What going guarantor means
You make every repayment on the loan. The guarantor is called on only if you can't pay and selling your property doesn't clear the debt. Then the lender can ask the guarantor to pay the amount they guaranteed, plus interest and costs, and can enforce against their property if they don't.
MoneySmart, the government's money guide, puts it in one line: "Being a guarantor means you may have to repay someone else's loan."
What the guarantor is taking on
If you're the one being asked, treat it as if you were taking out the loan yourself.
You may have to pay.
If the borrower stops paying and the sale of their property leaves a shortfall, the lender can call on you for the guaranteed amount, with interest and recovery costs.
Your home can be at risk.
If the guarantee is secured on your home and you can't pay, the lender can enforce against it.
You can borrow less while it stands.
Lenders count the guarantee against you, so refinancing, a new loan or an investment purchase can get harder.
Your credit file can be affected.
A default on the loan you guaranteed can be recorded against you.
It can strain the relationship.
A formal guarantee puts legal weight on a family arrangement, and that pressure shows if repayments fall behind.
Saying no after getting advice is a reasonable answer. A cash gift, waiting, or a government scheme may do the same job.
Send this page to the person you're asking.
Limited or unlimited: the difference to check first
Limited.
The guarantor's liability is capped at a stated amount, or at the value of a stated property, plus the interest and costs the deed describes. Serious, but contained.
Unlimited.
The guarantor can be liable for the whole debt and its costs. A much bigger risk.
Banks that have signed up to the Banking Code of Practice must limit a guarantor's liability, and must take reasonable steps to meet the guarantor without the borrower there, in most cases. Not every lender has signed up, so read the deed itself and confirm the cap before anyone signs. Independent legal advice for the guarantor is standard, and often a condition of the loan.
How a family guarantee works
You bring a deposit. How much depends on the lender.
The guarantor offers part of their equity. A set amount, secured by a mortgage over their property for that amount only.
The lender looks at both together. With the extra security, the loan can sit at a level where lenders mortgage insurance isn't needed, on the lender's own criteria.
You keep paying. Every repayment is yours. The guarantor is only called on in the case above.
How the numbers can work
An illustration, not a client file. A $700,000 home, and a buyer with a $35,000 deposit (5%). Without help, the loan is $665,000, 95% of the price, and most lenders would charge lenders mortgage insurance. A parent guarantees $105,000, secured on their home. That takes the part of the loan resting on the buyer's property alone to $560,000, or 80% of the price. The buyer owes the full $665,000 and makes every repayment; the parent's most they can be asked for is $105,000, plus the interest and costs in the deed.
Purchase costs are left out to keep it simple. Whether a lender accepts this, and on what terms, depends on its own criteria on the day.
Who can be a guarantor
Lenders usually look for close family, most often a parent, sometimes a sibling, adult child, grandparent or guardian, who:
Owns property in Australia with enough equity to cover the amount guaranteed.
Is an Australian citizen or permanent resident.
Could pay the guaranteed amount if they had to.
Gets independent legal advice before signing.
Which relationships each lender accepts differs, and so does its view of a guarantor who has retired or lives on a pension. Some accept one with extra advice; others decline. Ask before you plan around it.
How the guarantor comes off the loan
A family guarantee isn't meant to last the life of the loan, but it doesn't end on its own. Plan the exit before anyone signs.
The loan has to shrink against the property's value. Through your repayments, a rise in value, or both, until the lender no longer needs the extra security. The level is the lender's own, usually where it wouldn't charge mortgage insurance.
Your repayment record has to be clean.
You apply. The guarantor doesn't come off automatically.
The lender checks. It usually orders a new valuation and reviews the loan before it lets the guarantee go.
How long that takes depends on how fast you pay down and what values do. There's no set date, and a flat market makes it longer. Paying extra off the loan is the one lever you control.
Guarantor, co-borrower or gifted deposit?
Guarantor.
Backs a set amount with security. Usually not on the title and not on the loan.
Co-borrower.
Owes the whole loan with you from the first day, and is usually on the title.
Gifted deposit.
Cash given toward your deposit, with no ongoing security. Lenders will want it documented.
None is always better. It depends on the family's equity and income, the relationship, and the lender.
What usually goes wrong
No independent advice, or the liability cap never read.
Unlimited wording left in the deed when a limited guarantee was on offer.
No plan for release, then values go flat and it takes years longer.
The guarantor needs to sell or refinance while their home is still security.
Family pressure overrides a clear "I can't afford this risk".
Expecting the guarantor to help with repayments if income drops. That isn't what the guarantee is for.
A guarantee helps with the deposit, not with whether you can afford the repayments. If your income is the hard part, fix that first.
Guarantor questions
A home loan where a family member uses equity in their own property as extra security, so the buyer can borrow with a smaller deposit. The guarantor promises to pay a set amount if the buyer can't, and their property secures that promise.
Thinking about a family guarantee?
Tell me the price you're looking at, the deposit you have, and roughly what the guarantor's home is worth and owes. I'll set out what the guarantee would be, how it would come off, and whether another route does the job without it.
You'll hear back within the hour in business hours, and by 9am the next business day after hours.
Sources
- 1
MoneySmart (ASIC), Going guarantor on a loan, updated 9 September 2026. Read 2 October 2026.
- 2
Australian Banking Association, Banking Code of Practice, in effect from 28 February 2025. Read 28 August 2026.
Updated 3 October 2026