What is a guarantor loan?

A guarantor loan is a home loan arrangement where a family member (usually a parent) pledges their own property equity or financial assets to back the borrower's mortgage. The guarantor does not contribute cash to the purchase but instead provides security that reduces the lender's risk exposure.

This structure achieves two main outcomes. First, it can help a buyer avoid lenders mortgage insurance (LMI), which would otherwise apply if the deposit sits below 20 percent. Second, it allows borrowers to enter the market with a smaller deposit than they could otherwise obtain, since the guarantor's equity covers part of the shortfall.

Guarantor arrangements typically fall into two categories. A security guarantee means the guarantor's property is formally registered as a second charge against the loan. A servicing guarantee, by contrast, requires the guarantor to step in and meet loan repayments if the primary borrower cannot. Lenders in Perth and across Australia assess each arrangement differently, so the terms, interest rates, and requirements vary between financial institutions.

Guarantor loans carry genuine risk for the guarantor, whose assets are exposed if the borrower defaults. First-home buyers often rely on this structure, so finding a broker experienced in family guarantee arrangements is important to understand the implications before signing.