If you're trying to buy a home but don't have a full deposit saved, you've probably come across the term guarantor home loan. It's one of the most common ways Australians get into the property market sooner, usually with help from a parent. But it's a decision that affects two people, not one, so it pays to understand exactly how it works before anyone signs anything.
What Is a Guarantor Home Loan?
A guarantor home loan is a normal home loan with one added feature: someone close to you, usually a parent, agrees to use the equity in their own property as extra security for your loan. They're not handing over cash. They're putting part of their home on the line to help you borrow what you need.
This is usually done to cover the gap between your savings and a full 20% deposit. So if you've saved 5% or 10%, a guarantor can help make up the difference.
How a Guarantor Home Loan Works
Here's the process, step by step.
- You apply for the loan as normal. You're still the one on the title, and you're still the one responsible for repayments.
- Your guarantor offers part of their property as security. The lender registers a limited guarantee, usually just enough to cover the shortfall in your deposit, not the whole loan.
- The lender assesses both of you. They check that you can afford the repayments and that your guarantor understands the commitment.
- You borrow more than you could alone. In many cases, this means borrowing up to 100% of the purchase price, sometimes with no Lenders Mortgage Insurance (LMI).
- The guarantee is limited and can be removed later. Once you've paid down enough of the loan or your property value has grown enough, you can usually apply to release your guarantor.
Your guarantor isn't automatically liable for the entire loan. Most guarantees are set at a fixed amount, and a good lender or broker will explain exactly what that figure is before anyone commits.
Who Can Be a Guarantor?
Most lenders prefer an immediate family member, usually a parent, though some will consider a sibling or grandparent depending on the lender's policy. To qualify, your guarantor generally needs to:
- Own their own home with enough equity to cover the guarantee
- Be able to show they can still meet their own financial commitments
- Get independent legal advice before signing (most lenders require this)
Benefits of a Guarantor Home Loan
For the borrower, the appeal is straightforward:
- You may be able to buy sooner instead of waiting years to save a full deposit
- You can often avoid paying LMI, which can save you thousands upfront
- You may get access to a wider range of loan products
What Your Guarantor Needs to Know
This is the part that gets skipped too often. If you can't keep up with repayments, your lender can ask your guarantor to cover the shortfall, and in a worst case, that could put their own home at risk. Being a guarantor can also affect their ability to borrow for themselves while the guarantee is in place.
None of this means a guarantor home loan is a bad idea. It just means it deserves an honest conversation between everyone involved, with the numbers laid out clearly, before anyone agrees to anything.
How to Release a Guarantor From the Loan
A guarantor arrangement isn't meant to be permanent. You can usually apply to have your guarantor released once one of the following happens:
- You've paid the loan down to around 80% of the property's value
- Your property has increased in value enough to bring your equity above that 80% mark
- You refinance the loan without needing a guarantee
A lender will need to reassess your situation before releasing the guarantee, so it's worth checking in on this regularly rather than assuming it happens automatically.
Is a Guarantor Home Loan Right for You?
A guarantor home loan can be a smart way to buy sooner and save on LMI, but it's not something to jump into without checking the details first. The right structure depends on your deposit, your guarantor's situation, and the lenders who'll actually work with your circumstances.
That's where we come in. We'll walk you and your guarantor through exactly what's involved, compare your options across our lender panel, and give you an honest answer on whether it's the right move, before you commit to anything. Book a free chat with the Swish team and find out where you stand.
