Guarantor home loans: how a family guarantee works

A guarantor home loan lets a family member, usually a parent, use the equity in their own home as extra security for your loan. It means you can buy with a small deposit and usually avoid lenders mortgage insurance. The guarantor does not hand over cash, but takes on real risk: Moneysmart says a guarantor agrees to repay the loan if the borrower cannot, and may have to repay all of it.

Most guarantees are limited to part of the loan, and banks that subscribe to the Banking Code of Practice must give the guarantor specific protections. This guide covers how a guarantor home loan works, what it puts at risk, and how the guarantor gets released.

How a guarantor home loan works

A guarantor home loan works like a normal home loan with extra security. The lender takes a mortgage over the home you buy, plus a mortgage or guarantee over part of the guarantor’s home. With the 2 properties together, the lender treats the loan as if you had a 20% deposit, which is why lenders mortgage insurance usually does not apply.

Some lenders let you borrow up to 100% of the price plus costs such as stamp duty with a guarantor: Bankwest and ANZ both say so. You still have to show you can afford the repayments on your own income. The guarantee is normally limited to the part of the loan above 80% of the property’s value, not the whole loan. That limit is what the guarantor can be asked to pay, plus interest and recovery costs as set out in the guarantee.

A worked example: a $600,000 Perth home

Here is how a family guarantee could be structured on a $600,000 home in Perth, calculated by Compare A Broker:

Item	Amount
Purchase price	$600,000
Your deposit (5%)	$30,000
Loan	$570,000
80% of the property’s value	$480,000
Amount above 80%, covered by the guarantee	$90,000

The parent guarantees $90,000, not $570,000. That limit matters. Once your loan falls to 80% of the home’s value, the guarantee can usually be removed. At the same $600,000 value, that means paying the loan down to $480,000. If the home’s value rises to $712,500, a $570,000 loan is already at 80%, so a new valuation could be enough.

Who can be a guarantor for a home loan?

A guarantor is usually a parent, and some lenders accept other close family members. Lenders then check 2 things. The guarantor must own property with enough equity to cover the guaranteed amount, and many lenders also check the guarantor’s income and credit history. Each lender sets its own rules on who qualifies, how much equity they need and how much you can borrow, so check them before you apply.

A guarantor loan is not the same as a co-borrower. A guarantor is not on the loan and does not own your home, but is liable up to the limit of the guarantee if you cannot pay.

The risks of being a guarantor

The biggest risk in a guarantor home loan falls on the guarantor, who may have to repay someone else’s loan. Moneysmart sets out 4 risks (Moneysmart):

• You may have to repay the debt. If the borrower cannot make repayments, you may have to repay the loan plus interest, up to your guarantee. If you cannot pay, the lender may sell the asset you used as security, such as your home.
• It could stop you getting a loan. You must tell a future lender about any loan you guarantee, and it may decide not to lend to you even if the borrower keeps up repayments.
• You could get a bad credit report. If the guaranteed loan goes into default and you cannot repay, the lender may record a default on your credit report.
• It could damage your relationship. Money problems between family members are hard to undo.

Moneysmart says to treat a guarantee as if you were taking out the loan yourself, and to check you could afford the repayments if the borrower cannot. Read the loan contract first. If someone pressures you to go guarantor, Moneysmart says that may be a sign of financial abuse.

Your protections under the Banking Code of Practice

If a bank provides the guarantor home loan, and that bank subscribes to the Australian Banking Association’s Banking Code of Practice, the guarantor gets extra protections. Under the 2025 Code (Banking Code of Practice, paragraphs 100 to 127):

• A limited guarantee. Your guarantee is limited to a specific amount, or to the value of a specified property under a specified mortgage.
• The documents first. The bank must give you the proposed loan contract, any related credit report, and other information about the borrower.
• A meeting without the borrower. The bank takes reasonable steps to discuss the guarantee with you without the borrower present, unless you have had independent legal advice.
• 3 days to think. The bank will not accept your guarantee until the third day after giving you that information, unless you or your lawyer confirm you have had independent legal advice.
• Warnings if things go wrong. The bank must send you any default notice or formal demand within 14 days, and tell you if the borrower’s loan changes because of financial difficulty.
• Your home comes last. The bank will not enforce a mortgage over your home until it has first enforced the security the borrower gave, such as the home they bought. There are limited exceptions, such as when the borrower’s security is unlikely to cover much of the debt.

Protections under the National Credit Code

Some guarantor protections are law for every lender, not only banks. Under the National Credit Code, the lender must give you a copy of the proposed credit contract before you sign, and a guarantee is not enforceable if it does not. You can also withdraw from the guarantee by written notice at any time before credit is first provided. After that, you can still withdraw if the signed contract differs in a material way from the one you were shown (National Credit Code, sections 56 to 58). Non-bank lenders that do not subscribe to the Banking Code are not bound by the Code’s extra protections, so ask any lender which apply.

How to get released from a guarantee

Releasing the guarantor from a guarantor home loan usually means getting your loan to 80% of the property’s value or below, so the lender no longer needs the extra security. That can happen by paying the loan down, by the property rising in value, or both. Release is not automatic. You apply to the lender, which usually orders a new valuation and reassesses your loan, and your repayments must not be in arrears. Fees such as a valuation or discharge fee may apply, so ask the lender what release will cost.

Under the Banking Code, a guarantor can also end their liability by paying the bank the lower of 2 amounts: the borrower’s outstanding debt, or the guarantee limit. The bank can also agree to another arrangement. Ask early. Moneysmart suggests asking the lender, before you sign, to confirm the exact amount you guarantee, when it may reduce and when it can end.

Alternatives to a family guarantee

A guarantee is not the only way family can help, and not the only way to avoid lenders mortgage insurance:

• A gifted deposit. Moneysmart notes a family member can contribute money towards a deposit instead of going guarantor.
• The 5% Deposit Scheme. First home buyers can buy with a 5% deposit and no lenders mortgage insurance, up to an $850,000 price cap in Perth.
• Help to Buy. The government can own part of the home, with a 2% deposit, if you meet the income limits.
• Keystart. WA’s government-backed lender offers a low deposit loan with no lenders mortgage insurance.

Our guide to WA first home buyer grants and schemes compares these options.

How a broker fits in

423 businesses are listed in our first home buyer loans directory. Guarantor rules differ from lender to lender, so a broker can compare which lenders accept your guarantor, how much of the loan must be guaranteed, and what each lender needs for release. The parent should still get independent legal advice on the guarantee itself, separate from the broker and the borrower. Moneysmart and the Banking Code recommend it, and many lenders require it. Check the broker’s credit licence before you share documents.

Checked against Moneysmart, the Banking Code of Practice 2025 and lender pages on 26 September 2026. This is general information, not financial or legal advice. It does not consider your objectives, financial situation or needs.

Frequently asked questions

What is a guarantor home loan?

A guarantor home loan is a home loan where a family member, usually a parent, uses equity in their own home as extra security. It lets the borrower buy with a small deposit and usually avoid lenders mortgage insurance. The guarantor is liable up to the guarantee limit if the borrower cannot pay.

Who can be my guarantor for a home loan?

A guarantor is usually a parent, and some lenders accept other close family members. Lenders then check 2 things: that the guarantor owns property with enough equity to cover the guaranteed amount, and often their income and credit history. Each lender sets its own rules, so check them with the lender or a broker.

What are the downsides of being a guarantor?

Moneysmart lists 4 downsides of being the guarantor on a guarantor home loan. You may have to repay the debt up to your guarantee and could lose your home. It could stop you getting a loan, a default could go on your credit report, and it could damage your relationship.

How long does a guarantor stay on a mortgage?

On a guarantor home loan, the guarantor usually stays on until the borrower’s loan is at or below 80% of the property’s value. On a $570,000 loan against a $600,000 home, that means paying the loan down to $480,000, or the home being valued at $712,500 or more.

Can a guarantor withdraw from a home loan guarantee?

Yes, before the loan is drawn. Under the National Credit Code, a guarantor can withdraw by written notice at any time before credit is first provided. After that, the guarantor can end their liability by paying the lower of the outstanding debt or the guarantee limit, or by an arrangement the bank agrees to.

Is a guarantor required for a home loan?

No. A guarantor home loan is optional, and most borrowers with a 20% deposit do not need one. It mainly helps buyers with a small deposit avoid lenders mortgage insurance. First home buyers can also use the 5% Deposit Scheme, Help to Buy or Keystart instead.