Debt Consolidation Loans Simplify Parents Help Kids Buy With No Deposit Save on Interest
Use your parents' property equity as security to buy your first home with little to no deposit. Avoid LMI and enter the market faster with a family guarantee.
What is a Guarantor Home Loan?
A guarantor loan (also called a family guarantee or family pledge) allows a family member—typically parents—to use their property equity as additional security for your home loan, enabling you to borrow with a smaller deposit or no deposit at all.
How It Works
You Want to Buy
You've found your dream home but don't have a full 20% deposit saved yet.
Parents Guarantee
Your parents offer their home as security for the shortfall (typically 15-25% of your purchase price).
No LMI Required
You avoid Lenders Mortgage Insurance (saving $10K-$30K+) and get better rates.
Guarantee Released
Once you have 20% equity (through repayments + growth), the guarantee is removed automatically.
Save on LMI
Avoid paying $10,000-$30,000+ in Lenders Mortgage Insurance. This money stays in your pocket or goes towards your home.
Buy Sooner
Enter the market years earlier instead of waiting to save a 20% deposit. Start building equity and benefiting from capital growth now.
Better Rates
Access standard interest rates instead of higher LMI-inclusive rates. Lower rates = thousands saved over the life of your loan.
Temporary Security
The guarantee is typically removed after 2-5 years once you've built sufficient equity. It's not permanent.
Family Support
Parents help you without gifting cash. They use their home equity as security while keeping their own home and equity intact.
First Home Benefits
You still qualify for first home buyer grants and stamp duty concessions since you're the actual purchaser, not your parents.
Real Guarantor Loan Examples
See how guarantor loans work in practice with realistic scenarios.
Example 1: First Home Buyer - 5% Deposit
Your Situation:
- Purchase price: $700,000
- Your deposit saved: $35,000 (5%)
- Your income: $85,000/year
- Loan amount needed: $665,000
Parents' Guarantee:
- Parents' home value: $900,000
- Parents' mortgage: $150,000
- Available equity: $570,000
- Guarantee amount: $105,000 (15%)
The Outcome:
✅ LMI Saved: $24,500 (would have cost this with 5% deposit)
✅ Interest Rate: 6.10% (standard rate, not LMI-loaded)
✅ Guarantee Limit: Parents guarantee $105K on their property
✅ Release Timeline: When your property reaches $840K value (20% equity) or you pay down to 80% LVR
✅ Parents' Risk: Only liable for $105K maximum if you default (not the full loan)
Example 2: Zero Deposit First Home
Your Situation:
- Purchase price: $600,000
- Your deposit saved: $0 (but 10K for costs)
- Combined income: $140,000/year
- Loan amount needed: $600,000
Parents' Guarantee:
- Parents' home value: $1,200,000
- Parents' mortgage: $0 (paid off)
- Available equity: $960,000
- Guarantee amount: $120,000 (20%)
The Outcome:
✅ LMI Saved: $22,000+ (would have cost this with 0% deposit)
✅ Enter Market Now: No need to save $120K deposit (2-3 years of saving)
✅ Guarantee Limit: Parents guarantee $120K, not the full $600K loan
✅ Release Timeline: After 3-5 years as property appreciates and you pay down principal
✅ Benefit from Growth: If property grows 6%/year, you gain $108K in equity over 3 years instead of renting
Important: Both you and your parents need to demonstrate the ability to service the full loan if you were to default. Lenders assess income for both parties to ensure the loan is affordable.
Guarantor Loan Requirements
Both the borrower and guarantor need to meet specific criteria for approval.
Borrower (You) Must Have:
- Stable income: Full-time, part-time, or self-employed income that can service the full loan amount
- Good credit history: Clean credit report with no defaults, bankruptcies, or serious credit issues
- Genuine savings: At least 5% genuine savings (held for 3+ months) to show saving discipline
- Age limit: Usually under 40 years old (lenders prefer younger borrowers for guarantor loans)
- Australian citizen/PR: Must be Australian citizen or permanent resident
- Owner-occupier: Must be purchasing to live in (most lenders don't allow guarantor for investment)
- First home buyer: Many lenders prefer first home buyers (though not mandatory with all lenders)
Guarantor (Parents) Must Have:
- Sufficient equity: At least 20% equity remaining in their home after providing the guarantee
- Stable income: Ability to service the guaranteed portion if required (can include pension/super)
- Good credit history: Clean credit file with no adverse events
- Age limit: Usually under 65-70 years old (varies by lender)
- Australian property: Security property must be in Australia
- Close family: Usually parents, but some lenders accept grandparents or siblings
- Independent legal advice: Must obtain legal advice before signing (mandatory)
Understanding the Risks & Protections
It's crucial both parties understand the obligations and how to protect themselves.
⚠️ Risks for Guarantors (Parents)
❌ Potential Risks:
- Liable if borrower defaults on repayments
- Can lose your home if both you and borrower can't pay
- Reduced borrowing capacity for your own needs
- Guarantee shown on your credit file
- May impact ability to downsize or sell
- Lender can pursue you directly for guaranteed amount
✓ Key Protections:
- Guarantee is limited to a set amount (not the full loan)
- Lender can't take more than the guaranteed portion
- Legal advice required before signing (protects you)
- Can be released once borrower reaches 20% equity
- You don't make repayments unless borrower defaults
- Can set up regular loan statements to monitor
🛡️ How to Minimize Risk (For Both Parties)
1. Set Clear Expectations
Document agreement on repayment responsibility, what happens if income drops, and exit strategy timeline.
2. Limit the Guarantee Amount
Only guarantee the minimum required (15-20%), not the full loan amount. This limits parents' exposure.
3. Get Insurance
Consider income protection insurance and life insurance on the borrower to protect the guarantor.
4. Plan for Early Release
Make extra repayments when possible to reach 20% equity faster and release the guarantee sooner.
5. Regular Communication
Keep parents informed of payment status. Set up alerts if repayment is missed so they're not surprised.
6. Legal & Financial Advice
Both parties should get independent legal and financial advice before proceeding with guarantee.
💡 Pro Tip: The "Security Guarantee" vs "Servicing Guarantee"
Most guarantor loans are security guarantees—parents guarantee a portion of the loan with their property equity, but the borrower is solely responsible for making all repayments. This is the safest type of guarantee.
A servicing guarantee (less common) makes the guarantor liable for ongoing repayments if the borrower can't pay. We recommend avoiding servicing guarantees when possible.
Guarantor Loan FAQs
How long does the guarantee last?
The guarantee typically lasts 2-5 years until you reach 20% equity in your property through a combination of price appreciation and principal repayments. Once you hit 80% LVR, you can request the lender remove the guarantee. Some lenders do this automatically, others require you to apply. You may need a property valuation ($300-$600) to prove you've reached 20% equity.
Do my parents need to make repayments?
No. In a standard security guarantee, you (the borrower) are 100% responsible for making all loan repayments. Your parents only become liable if you default and can't make repayments. Even then, they're only liable up to the guaranteed amount (e.g., $100K), not the full loan balance. Your parents never make repayments unless something goes seriously wrong.
Can my parents still borrow money or sell their home?
It depends. The guarantee will show on their credit file and reduce their borrowing capacity. If they want to sell their home, they'll need to either: (1) get you to refinance and remove the guarantee first, (2) use proceeds from the sale to pay out the guaranteed portion, or (3) provide a different property as security. Most lenders allow guarantee to be transferred ("ported") to a new property if parents are downsizing.
Can I get a guarantor loan for an investment property?
Very difficult. Most lenders only allow guarantor loans for owner-occupied purchases, not investments. The logic is that people are less likely to default on their own home than an investment. A few specialist lenders may consider it in specific circumstances (e.g., you're buying a home and renting out one room), but expect stricter criteria and higher rates. Focus on owner-occupied purchases for guarantor loans.
What if my relationship with my parents breaks down?
This is a valid concern. The guarantee is a legal contract that can't be removed just because the relationship sours. Your options are: (1) refinance to another lender without a guarantee (need 20% equity), (2) find a different guarantor, or (3) continue making repayments until you reach 20% equity and can remove it. This is why it's crucial to have honest conversations upfront and ensure both parties are committed long-term.
Can both parents and I be on the title?
You could, but it's generally not recommended. If parents are on the title as co-owners, they lose first home buyer benefits, and the property becomes part of their asset base (affecting age pension eligibility and capital gains tax). The best structure is: children own the property 100%, parents provide guarantee only. This way, you get first home buyer grants/concessions, and parents don't have ownership complications.
What happens if my parents pass away during the guarantee period?
If a guarantor passes away, the guarantee typically remains in place until you reach 20% equity or pay it out. The guarantee becomes part of their estate. If their property is sold as part of estate distribution, you'll need to either: (1) quickly refinance to remove the guarantee, (2) pay out the guaranteed amount from your own funds, or (3) provide alternative security. This is why life insurance on parents can be worth considering in some cases.
Which lenders offer guarantor loans?
Most major banks (CBA, Westpac, ANZ, NAB) and many smaller lenders offer guarantor loans, but policies vary significantly. Some cap the guarantee at 15%, others allow 20-25%. Some have age limits of 65 for guarantors, others go to 70+. Some require 5% genuine savings, others accept gifted deposits. We compare 32+ lenders daily to find which one has the best guarantor policy for your specific situation.
How We Help with Guarantor Loans
Guarantor loans are complex. We guide both you and your parents through every step with expert advice.
Lender Matching
Every lender has different guarantor policies. We match you to lenders with the most favorable guarantee terms and lowest LMI thresholds.
Family Meetings
We meet with you and your parents together to explain how the guarantee works, answer all questions, and ensure everyone is comfortable.
LMI Savings Calculator
We'll show you exactly how much you save on LMI with a guarantor versus paying it yourself. Often $15K-$35K in savings.
Legal Referrals
We connect your parents with lawyers experienced in guarantor loans for independent legal advice (required by law).
Guarantee Release Planning
We create a roadmap for removing the guarantee as fast as possible through extra repayments and monitoring property value.
Ongoing Support
We stay in touch throughout the guarantee period and help you navigate refinancing or guarantee removal when the time comes.
Ready to Explore a Guarantor Loan?
We'll help you and your family navigate guarantor loans safely. Save on LMI, enter the market sooner, and build equity from day one.