FAMILY SECURITY

Guarantor Home Loans

A family guarantee can get a buyer into a home years earlier without mortgage insurance. It also puts the guarantor’s property at risk, and that has to be said out loud.

Talk through a guarantee 1300 015 267

Structure
Limited security guarantee
Effect
Can remove LMI
Requirement
Independent legal advice
Lender panel
40+

Is this you?

If any of these are true, we can help.

Talk it through

Buyers with reliable income and a deposit that is short of the mark.
Parents who want to help without handing over cash they may need later.
Families weighing a guarantee against a gifted deposit.
Borrowers already in a guarantee arrangement who want the guarantor released.
Guarantors who have been asked to sign and want to understand the exposure first.

How it works

Three moves, in plain words.

Reduce the loan below the threshold
Usually the loan needs to fall to 80 per cent or less of the borrower’s own property value, so that no mortgage insurance would be required without the guarantee.
Get a current valuation
Value growth counts as much as repayments. Ask the lender to revalue the security property.
Apply for a partial discharge
The borrower applies to the lender to release the guarantor’s property from the security. Some lenders reassess servicing at this point.

We will walk both parties through the structure, the exposure and the release path, so the decision is made with the risk on the table rather than under it.

Send us the numbers 1300 015 267

What a security guarantee actually is

A guarantor offers part of the equity in their own property as additional security for someone else’s home loan. It does not involve giving money. It involves giving the lender a second property to fall back on if the loan is not repaid.

Because the lender holds more security, the effective LVR falls, which is how a buyer with a small deposit avoids lender’s mortgage insurance and reaches a purchase earlier. The loan is still assessed on the borrower’s income. A guarantee solves a deposit problem, not a servicing one.

In most arrangements the guaranteed portion is limited to the amount needed to bring the borrower to a comfortable LVR, and a mortgage is registered over the guarantor’s property for that limited amount.

Where a $570,000 loan is actually secured

Secured by the property being bought$480,000
Guaranteed by the family property$90,000

The guarantee is the small slice, not the whole loan. Here the family property carries $90,000 — the gap between the buyer’s deposit and the 80 per cent line — and nothing beyond it, provided that limit is written into the documents rather than described in conversation.

Illustrative figures only. The guaranteed portion is set by the lender. Not a quote and not an offer of credit.

View as a table

Component	Amount	Share
Secured by the property being bought	$480,000	84%
Guaranteed by the family property	$90,000	16%
Total	$570,000	100%

A family security guarantee

No premium to pay, because the extra security removes the need for mortgage insurance.
No cash changes hands. What is given is a claim over a second property.
The guarantor’s equity is reduced and their own borrowing is affected until release.
Ends only when it is applied for, once the loan falls to a level that would not require insurance on its own.

Paying the LMI premium

A real cost, usually capitalised onto the loan and repaid with interest over the term.
Nobody else’s property is involved, and no family conversation is required.
The insurer assesses you as well as the lender does, so the file is looked at harder above 80 per cent LVR.
It is finished at settlement. There is nothing left to unwind afterwards.

The detail

What the guarantor is exposed to

A guarantee also affects the guarantor while nothing is going wrong. It reduces the equity available to them for their own borrowing, it must be disclosed in any application they make, and it can complicate selling or refinancing their property until it is released.

None of this makes it a bad decision. Many families make it deliberately and it works exactly as intended. It only becomes a bad decision when it is made without the risk being stated, which is why lenders require independent legal advice before a guarantor signs.

Limited and unlimited guarantees

The difference matters enormously
	Limited guarantee	Unlimited guarantee
Exposure	Capped at a stated amount	The whole loan
Security registered	A mortgage over the guarantor’s property for the limited amount	A mortgage supporting the full debt
Common use	Standard family security guarantees for residential purchases	Rare in family arrangements, more common in commercial lending
What to insist on	A stated dollar limit written into the guarantee documents	Ask why an unlimited guarantee is being sought at all

For a family security guarantee, the exposure should be limited and the limit should be visible in the documents. If a lender proposes an unlimited guarantee for a straightforward residential purchase, that is a question worth pressing before anything is signed.

Security guarantee: A guarantee supported by a mortgage over the guarantor’s property, rather than by a promise to pay from income.
Guaranteed portion: The stated amount the guarantor is exposed to, usually the difference between the borrower’s deposit and a comfortable LVR.
Contingent liability: How the guarantee appears in the guarantor’s own affairs. It must be disclosed in any application they make, and lenders factor it in.
Partial discharge: The application that removes the guarantor’s property from the security once the loan has fallen far enough. It is not automatic.
Independent legal advice: Advice from a solicitor who does not act for the borrower, evidenced by a signed certificate. A lender requirement, not a courtesy.

Who lenders accept as a guarantor

Parents are accepted by nearly every lender that offers the structure.
Grandparents and siblings are accepted by some lenders, often with conditions.
The guarantor generally needs to own Australian property with sufficient equity, held either outright or with a manageable mortgage.
Retired guarantors are assessed more carefully, particularly where the guarantee could not be met from income if it were called.
Some lenders require the guarantor to demonstrate they could service the guaranteed portion, others rely on the equity alone.
A guarantor’s own credit file is checked, and existing guarantees they have given must be disclosed.

Where a guarantor is retired or on a fixed income, several lenders will decline or restrict the arrangement on the basis that it may not be appropriate for them. That is a protection rather than an obstacle, and it is worth taking seriously rather than shopping around until someone says yes.

The conversation a guarantee should be decided in, with both households present rather than one asking the other. — A guarantee is assessed on two files, not one. The guarantor’s credit report is pulled, their equity is measured, and any guarantee they have already given elsewhere has to be disclosed.

Independent legal advice is not a formality

Lenders require a guarantor to obtain independent legal advice, from a solicitor who does not act for the borrower, and to produce a signed certificate confirming it. Some also require independent financial advice.

The purpose is to make sure the guarantor understands what they are signing, is not under pressure, and knows the worst case rather than the intended case. It exists because guarantees between family members are exactly the situation where someone signs to avoid an awkward conversation.

01The guarantor should meet the solicitor alone, without the borrower present.
02They should read the guarantee documents and see the stated limit.
03They should ask what happens if the borrower separates, becomes ill, or loses income.
04They should confirm how and when the guarantee can be released.
05They should be comfortable saying no. A guarantee declined at this stage costs nothing but a conversation.

Getting the guarantee released

A guarantee is meant to be temporary. Release is not automatic, so it needs to be pursued deliberately once the conditions are met.

The reading the guarantee exists to fix

Against the buyer’s own property the loan sits at 95 per cent. The guarantee brings the lender’s effective position back under 80. When repayments and value growth move this reading to 80 on its own, release becomes possible — and it still has to be applied for.

Illustrative projection only. Release thresholds are set by the lender. Not a quote and not an offer of credit.

View as a table

Band	Up to
Release available	80%
LMI territory	90%
Guarantee doing the work	100%
The same loan measured against the buyer’s property alone	95.0%

01
Reduce the loan below the threshold
Usually the loan needs to fall to 80 per cent or less of the borrower’s own property value, so that no mortgage insurance would be required without the guarantee.
02
Get a current valuation
Value growth counts as much as repayments. Ask the lender to revalue the security property.
03
Apply for a partial discharge
The borrower applies to the lender to release the guarantor’s property from the security. Some lenders reassess servicing at this point.
04
Discharge registered
The mortgage over the guarantor’s property is discharged and their title is clear again.
05
Confirm in writing
Both borrower and guarantor should hold written confirmation that the guarantee has ended.

Making extra repayments during the early years is the fastest way to bring release forward. It is worth agreeing at the outset how quickly the borrower intends to get there, so the guarantor knows the expected timeframe rather than assuming one.

Alternatives worth considering first

Other ways families help
Option	How it compares
Gifted deposit	No ongoing exposure for the giver. Requires a statutory declaration confirming it is a gift, not a loan
Paying the LMI premium	The buyer proceeds with a smaller deposit and no family security is given at all
Government-supported guarantee schemes	Eligible buyers can purchase with a smaller deposit without LMI. Eligibility and places change, so check the current position
A family loan documented properly	Assessed as a liability by the lender, which reduces borrowing capacity, but keeps the family property out of it
Waiting and saving	Slower, and genuinely the right answer for some buyers. Rent is a cost, and so is the wrong purchase

A gifted deposit and a guarantee are often discussed as if they were the same favour. They are not. One risks money already given. The other risks a home still lived in.

Documents for a guarantee

What both parties provide
Document	From whom
Identification	Borrower and guarantor
Income evidence	Borrower, and guarantor where the lender requires servicing evidence
Rates notice for the guarantor’s property	Guarantor
Mortgage statements for the guarantor’s loan	Guarantor, where a loan exists
Building insurance certificate	Guarantor, for the security property
Independent legal advice certificate	Guarantor’s solicitor
Guarantee and indemnity documents	The lender, signed by the guarantor
Contract of sale	Borrower
Liability statements	Borrower, and often guarantor

Run the numbers

See it with your own figures.

Indicative only. Change anything — the defaults are starting points, not quotes.

Indicative borrowing power$519,000A rough shape, not a pre-approval

Who is applying

Applicant

Two applicants are assessed together, with each income taxed on its own.

Gross annual income

Before tax, before super.

Other annual income

Rent, bonuses, overtime, commission. Lenders count only part of it — see the shading field below.

Dependants

Children or others you support financially. Each one lifts the expense floor a lender will apply.

What goes out each month

Living expenses

Groceries, utilities, transport, insurance, schooling, subscriptions. Not rent you will stop paying, and not the new loan.

Existing loan and lease commitments

Car loans, personal loans, buy-now-pay-later, equipment finance, other mortgages — as one monthly total. Or list them one at a time under Debts you already carry below. Not both, or the same repayment counts twice.

Total credit card limits

The limit, not the balance. A card you never use still costs you borrowing power.

The assumptions — change these

Other income counted

Lenders shade variable income. Some count 80% of rent, some 70%, some less again for commission. This is a starting point, not a lender's policy.

Monthly charge on credit card limits

A share of your total limits treated as a monthly commitment. Lenders set their own figure. This one is a placeholder.

Surplus held back as a safety margin

Lenders will not let you commit every spare dollar. The rest goes to the loan repayment.

Assessment rate

A lender tests you at its product rate plus its own buffer, not at the rate you would pay. The figure here is an editable placeholder — it is not a rate we are quoting and it is not anyone's current rate.

Loan term

Debts you already carry

A lender counts every existing repayment against you. Add them here and watch the figure move — then see what clearing them first would do.

Add a debt

Pick the closest type. It only sets the name — you fill in the numbers.

Read this before the number

Every lender assesses differently. Each one uses its own household expenditure benchmark for living costs, its own shading on variable income, and its own rate buffer. Two lenders looking at the same payslips can land more than a hundred thousand dollars apart. This tool is a rough indication built on the assumptions above. It is not a pre-approval, it is not a conditional approval, and no lender has seen your file.

Assumptions

Exactly what this calculator does with your figures:

Income tax is estimated on the resident individual scale applied here: nil to $18,200, then 15% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above that. Rates and thresholds change each financial year — confirm the current scale with the ATO or your accountant.
The Medicare levy is applied at 2% of gross income once income passes the tax-free threshold. The low-income phase-in, the levy surcharge, HELP and HECS repayments, salary packaging, offsets and deductions are all ignored.
Each applicant is taxed on their own income. Other income is split evenly between applicants, then 80% of the after-tax portion is counted.
A minimum monthly expense floor of $1,500 per adult plus $450 per dependant is applied, and the higher of that floor and your own figure is used. On your inputs the floor is $1,500. This floor is a rough stand-in only. It is not any lender’s HEM benchmark — those are not published, and they vary by postcode, income and household.
Credit card limits are charged at 3.8% of the total limit per month, whatever the balance.
20% of the monthly surplus is held back, and the remainder is treated as the repayment a lender would allow.
The loan amount is back-solved from that repayment at 8.50% over 30 years, principal and interest, then rounded down to the nearest thousand.
Debts added under “Debts you already carry” reduce capacity by their monthly repayment only, the same way the commitments figure does. Their balances and limits are not separately shaded. “If those debts were cleared first” removes those repayments and changes nothing else — it does not model the cash or the time it would take to clear them.
Not included: lenders mortgage insurance, deposit size, loan-to-value limits, stamp duty, credit history, employment stability, self-employed income assessment, any business or tax debt you have not added above, and any lender-specific policy. Any one of these can change the answer entirely.

Indicative borrowing power

$519,000

A rough shape based on the assumptions you set. Not a pre-approval, and not a figure any lender has agreed to.

Assessed income$7,590

Living expenses$2,600

Commitments and card limits$0

Left for a loan repayment$3,992

The only number that counts is the one a lender puts in writing. Bring us your payslips and your commitments and we will tell you where you actually stand, including which lenders read income like yours the way you need them to.

Get a real number

The detail behind that number

Assessed income, monthly: $7,590
Living expenses used: $2,600
Loan and lease commitments: $0
Charge on card limits: $0
Monthly surplus: $4,990
Treated as an affordable repayment: $3,992

Open the full calculator

FAQ

Questions people actually ask

If yours is not here, ask it. We would rather answer the awkward one early than have you find out later.

1300 015 267

What does a guarantor actually risk?

The guaranteed portion of the loan, secured against their property. If the borrower defaults and the sale of the borrower’s home does not cover the debt, the lender can call on the guarantee, and the guarantor’s property can be sold to meet it. That is the honest worst case and it should be understood before signing.

Can a guarantee be limited to a specific amount?

Yes, and for a family security guarantee it should be. A limited guarantee caps the exposure at a stated amount, usually the portion needed to bring the loan to a comfortable LVR. Make sure the limit appears in the documents rather than being described verbally.

Do I still need a deposit if I have a guarantor?

Usually some, though far less than without one. Many lenders will still want you to contribute toward costs such as stamp duty and legal fees, and some want evidence of genuine savings. A guarantee is designed to cover the deposit gap rather than every cost of buying.

Does a guarantee mean the guarantor makes repayments?

No. The borrower makes every repayment and the loan is assessed on the borrower’s income. The guarantor is only called on if the borrower defaults and the debt is not covered by selling the borrower’s property.

How long does the guarantee last?

Until it is released, which typically becomes possible once the loan falls to around 80 per cent or less of the borrower’s own property value. That can take a few years, and extra repayments bring it forward. Release is not automatic, so it has to be applied for.

Can the guarantor sell their home while the guarantee is in place?

Not freely. The lender holds a mortgage over their property for the guaranteed amount, so selling requires the lender’s consent and usually either release of the guarantee or substitution of security. This is one of the more practical reasons to pursue release deliberately.

Can my parents guarantee a loan if they still have a mortgage?

Often, yes, provided there is enough equity in their property after their own loan. The lender assesses their position as well as yours. Where their mortgage is large, the available equity may not be sufficient and other options are worth looking at.

Does a guarantee affect my parents’ ability to borrow?

Yes. The guarantee must be disclosed in any application they make, it reduces the equity available to them, and lenders factor the contingent liability into their assessment. If they are planning to borrow themselves in the near term, that is worth raising before the guarantee is given.

What happens if my relationship or circumstances change?

The guarantee continues regardless. Separation, illness or job loss do not end it, which is precisely why the independent legal advice covers those scenarios. It is worth discussing as a family what would happen in each case before the documents are signed.

Credentials

Credit Representative 554029
ABN 20 672 801 651
FBAA member
AFCA external dispute resolution

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