Guarantor Home Loans: How Family Security Works
ADS Team
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August 5, 2026
3 days ago
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In short: A guarantor home loan uses equity in a family member's property as additional security, bringing the effective LVR below 80% so no LMI is payable. The guarantor is not giving you money - they are pledging part of their home, and they are legally liable for the guaranteed portion if you default.
Key takeaways
- A limited guarantee caps the guarantor's exposure to a specific amount, not the whole loan.
- Guarantors should get independent legal advice - most lenders require it.
- The guarantee can usually be released once the LVR falls below 80% on the borrower's property alone.
- It affects the guarantor's own borrowing capacity while it remains in place.
How the numbers work
Buying at $700,000 with a $35,000 (5%) deposit:
| Without guarantor | With guarantor | |
|---|---|---|
| Loan | $665,000 | $665,000 |
| LVR on your property | 95% | 95% |
| Guarantee taken | - | $140,000 against family property |
| Combined security | $700,000 | $840,000 |
| Effective LVR | 95% | 79% |
| LMI | ~$24,000 | Nil |
The guarantee is limited to $140,000 - the guarantor is not liable for the entire $665,000.
What the guarantor is taking on
- Liability for the guaranteed amount if the borrower defaults and the sale does not cover the debt.
- A mortgage registered over their property for that portion.
- Reduced borrowing capacity of their own while the guarantee stands.
- A constraint on selling - releasing the guarantee requires the lender's agreement.
Lenders almost always require the guarantor to obtain independent legal advice, precisely because this is frequently misunderstood as a formality rather than a liability.
Getting the guarantee released
The guarantee is meant to be temporary. It can usually be released once the borrower's own LVR falls below 80%, which happens through:
- Paying down the loan
- Property appreciation, evidenced by a fresh valuation
- A combination of both
On the example above, the borrower needs the loan below $560,000 (80% of $700,000) - about $105,000 of principal reduction, or less if the property has grown. Ask the lender for a revaluation and release as soon as you think you are close; it does not happen automatically.
Frequently asked questions
Can my parents be guarantors if they still have a mortgage?
Yes, provided they have sufficient equity. The lender calculates available equity after their existing debt, and most require the guarantor property to be in Australia.
What if I default?
The lender pursues the borrower and the property first. If a shortfall remains, the guarantor is liable up to the guaranteed amount, which can mean selling or refinancing their own home.
Does a guarantee stop my parents borrowing?
It reduces their capacity, because the guaranteed amount is treated as a contingent liability. That is a real cost to them if they plan to borrow while the guarantee stands.
Related reading
- LVR Explained: Why 80% Is the Magic Number
- LMI in 2026: What It Costs by Deposit Size
- Interest-Only Loans: Who They Suit and Who They Trap
Sources
- Going guarantor on a loan — ASIC Moneysmart
- Banking Code of Practice - guarantees — Australian Banking Association
Information current as at 2 August 2026.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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