Help guide
Guarantor and family guarantee home loans in Australia
How much equity a guarantor needs, what a limited guarantee caps their exposure at, the release test lenders apply, and when the 5% scheme is the better route.
What the guarantor is actually pledging
A limited mortgage over a family member’s property, used as additional security for part of your loan — not a promise to make your repayments. The lender takes a second mortgage over the guarantor’s home for a capped dollar amount, which lets the combined security cover enough of the purchase to bring the loan under the 80% LVR threshold and remove Lenders Mortgage Insurance.
The word carrying the weight is limited. A limited guarantee names a specific figure — say $131,000 — and that figure, plus enforcement costs, is the ceiling on what the guarantor can be called on for. An unlimited guarantee exposes the whole of their property to the whole of the debt. Most Australian lenders write family guarantees as limited, but confirm the form in the guarantee document rather than assuming it.
The arithmetic: how much guarantee is needed
Work it from the LVR the lender has to reach. A buyer purchasing at $700,000 with a $35,000 deposit needs a $665,000 loan, which is 95% against that property alone. For the combined security to sit at 80%, total security has to be at least $831,250 — so the guarantee must bring in roughly $131,000 of the guarantor’s property value. If stamp duty is also being funded from the loan, the guarantee has to stretch further again.
That amount is charged against the guarantor’s available equity rather than their whole property. If their home is worth $900,000 with $300,000 still owing, a lender allowing total borrowings to 80% of value would permit $720,000 against it, leaving about $420,000 available. A $131,000 guarantee sits comfortably inside that — but it also reduces the guarantor’s own borrowing capacity by broadly the same amount for as long as it stays in place.
What happens if the loan goes bad
The sequence is more protective than most families assume, without being painless. The lender pursues the borrower first and sells the primary security. Only if that sale leaves a shortfall does it call on the guarantee, and then only up to the limited amount. The guarantor can settle that shortfall in cash, or refinance it onto their own loan, before the lender moves to enforce against their property.
What is not protected is the guarantor’s position while things are going wrong. The guarantee is a contingent liability other lenders count when assessing them for new borrowing, and it encumbers their title for as long as it runs. Independent legal advice is compulsory precisely because of this — the solicitor’s certificate is a large part of what makes the guarantee enforceable.
Getting the guarantee released
Release is not automatic and no lender will schedule it in advance. The standard test is that your loan must fall below 80% of the value of your own property, reached through principal reduction, a revaluation, or both together. With Cotality reporting national values down 3.6% from the March 2026 peak after five straight monthly falls, planning for capital growth to do that work is currently optimistic.
Lenders then differ on process. Some release at 80% on the paperwork alone; some require a fresh valuation at your cost, typically $300 to $600; and some run a full credit reassessment, which means proving you can service the remaining loan on your income alone under the 3 percentage point serviceability buffer. Ask which of the three applies before anyone signs, because it decides whether release is a form or an application.
Guarantee versus the 5% Deposit Scheme
Since 1 October 2025 the alternative has become much stronger. The Australian Government 5% Deposit Scheme, formerly the First Home Guarantee, dropped both its income caps and its 35,000-place limit, so there is no longer a race for places or a waitlist to join. Housing Australia guarantees up to 15% of the property value, no LMI is charged, and no family member is exposed to anything.
What binds instead is the price cap for your area — $950,000 in Melbourne and $650,000 regional Victoria, $1.5m in Sydney and $800,000 elsewhere in NSW, with equivalent caps in every other state and territory. Above the cap, or for a buyer who is not a first home buyer, a guarantee is often the only route to avoiding a premium. Below it, the fair question is why family should carry risk the Commonwealth will carry for nothing.
Settle these before anyone signs
Four things belong in writing before the guarantee documents are dated: the exact limit in dollars, the release test the lender will apply and whether it needs a fresh valuation, what happens if the borrowers’ relationship ends, and how the guarantor’s own plans — downsizing, aged care, a reverse mortgage, or their will — interact with a second mortgage sitting on their title for years.
The guarantor should use their own solicitor rather than the borrower’s, and should see the borrower’s actual numbers rather than a reassuring summary. This page is general education for Australian readers, not legal or personal credit advice, and a guarantor should always take the independent advice the lender requires.
About this page
FAQ
How much equity does a guarantor need?
Enough to close the gap between your deposit and 20% of the purchase price plus costs, held inside their lendable equity. On a $700,000 purchase with a $35,000 deposit that is roughly $131,000. Lenders count the guarantor’s property to 80% of value less anything owing, so a $900,000 home with a $300,000 mortgage leaves about $420,000 available.
Can a guarantor be removed from a home loan?
Yes, but only once the lender’s release test is met — typically when your loan falls below 80% of your property’s value on its own. That can come from paying down the loan, from a revaluation, or both. Some lenders release on paperwork alone, others require a fresh valuation at your cost or a full servicing reassessment. Release is never automatic and never scheduled upfront.
Does a guarantor have to make my repayments?
No. A family security guarantee pledges property as additional security; it is not an obligation to service the loan. The guarantor is only called on if you default, the lender sells your property, and a shortfall remains — and then only up to the limited amount named in the guarantee. Read the document to confirm it is limited rather than unlimited before signing.
Who can be a guarantor for a home loan in Australia?
Most lenders restrict it to immediate family, usually parents, with some extending to siblings, grandparents or adult children. A few accept a spouse’s parents. Age is scrutinised: lenders look hard at guarantors approaching or in retirement, because a call on the guarantee could leave them without a home, and some decline above a set age unless there is a clear exit.
Does being a guarantor affect their own borrowing power?
Yes. Other lenders treat the guaranteed amount as a contingent liability and count it when assessing the guarantor for new borrowing, so a $131,000 guarantee reduces their capacity by broadly that much. It also puts a second mortgage on their title, which complicates selling, downsizing or arranging a reverse mortgage while the guarantee remains in place.
Can you use a guarantor and the 5% Deposit Scheme together?
Generally no, and usually there is no reason to want to. The Australian Government 5% Deposit Scheme already removes LMI with no family exposure at all, and since 1 October 2025 it has no income caps and no limit on places. A guarantee becomes the alternative rather than an addition where the price exceeds the cap for your area, or where you are not a first home buyer.
Do guarantors need their own lawyer?
Yes, and it is a lender requirement rather than a courtesy. Australian lenders require a guarantor to take independent legal advice from a solicitor who does not act for the borrower, and to produce a signed certificate confirming it. Skipping that step can make the guarantee unenforceable, which is why lenders insist on it. Budget a few hundred dollars for the certificate.
Can a family guarantee be used for an investment property?
Some lenders allow it, but the panel narrows sharply. Many restrict guarantees to owner-occupied purchases on the view that family should not be exposed to a discretionary investment decision. Where investment guarantees are accepted, expect lower maximum LVRs on both securities. Investors should also note that from 1 July 2027 losses on established residential property acquired after 12 May 2026 will be quarantined.