Guarantor home loans

How a family guarantee works

Moneysmart's page on ways to buy a home sooner (updated 3 August 2026) describes a guarantor as someone who uses part of their own property as security for your home loan. Sometimes the guarantee covers only part of the loan, such as the deposit. This can help you buy with a smaller deposit, because the lender holds extra security.

A worked example with round, illustrative numbers. You buy an $800,000 home with a $40,000 deposit (5%). A lender that wants 80% loan to value is looking at a $160,000 deposit, so there is a $120,000 gap. A guarantee limited to about that $120,000 would cap what the guarantor must cover at that amount plus whatever the contract adds, such as costs and interest. A guarantee that is not limited could be for the whole loan. Read the guarantee document to see which one it is. Terms differ by lender, and RateSonar cannot tell you what yours says. For the ratios involved, see what is LVR.

Limited vs unlimited guarantee

Moneysmart (Going guarantor on a loan, updated 9 September 2026) says: "Sometimes you can guarantee only part of a loan." It adds that this may limit what you owe, but you could still lose an asset used as security.

The risks to the guarantor

From Moneysmart's page:

• You could owe the whole debt. If the borrower cannot make repayments, you may have to repay the whole loan plus interest.
• You may lose your home or car. If you cannot pay, the lender may repossess an asset you used as security.
• Your own borrowing can be affected. A guaranteed loan may affect your future borrowing, and a default could appear on your credit report.
• It can strain the relationship.
• Getting out can be hard. Moneysmart says that if the borrower cannot make repayments, it can be hard to get out of the guarantee.

Moneysmart's page on ways to buy a home sooner also says lenders mortgage insurance "protects the lender if a borrower can't repay their loan", which is separate from a guarantor. See lenders mortgage insurance.

Get independent advice, and know your exit

Moneysmart says to consider independent legal or financial advice so you understand the risks, and notes that free financial counselling and free legal advice are available. It also says you may be able to challenge a guarantee if you agreed because of pressure, threats or fear, had a disability or mental illness when you signed, did not understand the documents, or were misled by the lender or broker.

Before signing, ask the lender in writing:

1. Is the guarantee limited, and to what amount?
2. What are the conditions for releasing the guarantee, for example once the loan falls to a certain loan to value ratio? RateSonar did not find an official page that sets standard release terms, so it is a question for the lender.
3. What happens if the borrower refinances?
4. Will the lender tell the guarantor if repayments are missed?
5. Which property is the security, and which fees apply to it?

Guarantor vs the 5% Deposit Scheme

The Australian Government's 5% Deposit Scheme is covered in the first home buyer schemes guide. It is a government program through participating lenders for eligible first home buyers, with a minimum 5% deposit and no lenders mortgage insurance. Moneysmart also lists the Family Home Guarantee for eligible single parents and single legal guardians, with a deposit as low as 2% and eligibility rules. A family guarantor is different: a private arrangement with a relative, who carries the risk. Eligibility and conditions for the government schemes are on firsthomebuyers.gov.au. Compare rates for higher LVR loans on the 90% LVR board and on home loan rates.