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What Is a Guarantor Loan?
A guarantor home loan allows a borrower to use a parent, sibling, or close family member’s property equity as additional security, reducing or eliminating the need for a deposit. This makes it easier to qualify for a home loan and avoid costly Lender’s Mortgage Insurance (LMI).
How Guarantor Home Loans Work
In a guarantor loan, the borrower’s family member offers part of their home equity as collateral for the new mortgage. The guarantor does not need to provide cash—just a secured portion of their property’s value to cover the loan shortfall. This helps borrowers get into the property market sooner with a smaller deposit or even no deposit at all. Once enough equity is built up, the guarantor’s obligation can be released.
Benefits of a Guarantor Home Loan
Guarantor loans offer multiple advantages for first-home buyers and borrowers with limited savings:
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Buy with little or no deposit – Enter the market sooner without waiting years to save a 20% deposit.
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Avoid Lender’s Mortgage Insurance (LMI) – Save thousands in upfront costs by using a guarantor.
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Access better loan terms – Qualify for lower interest rates due to the additional security.
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Increase borrowing power – Secure a higher loan amount than standard lending limits allow.
These benefits make guarantor loans a popular choice for first-home buyers looking to overcome deposit challenges.
Specialist Mortgage Brokers for Guarantor Loans
At Freedom Mortgage Solutions, we work with over 30 lenders to find the best guarantor home loan rates with low fees, flexible repayment terms, and exit options for guarantors.
Hassle-Free Application & Loan Structuring
We guide both borrowers and guarantors through the loan process, ensuring full transparency and risk management. Our team helps structure the loan to allow guarantors to be released sooner, minimising financial exposure.
Who Can Be a Guarantor?
Most lenders require guarantors to be:
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Parents (most common)
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Siblings (some lenders allow)
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Grandparents or close relatives (case-by-case basis)
The guarantor must typically:
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Own a property in Australia
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Have sufficient home equity to secure part of the borrower’s loan
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Meet the lender’s financial requirements
Guarantors should understand that they share some financial responsibility for the loan until the borrower repays enough to remove their guarantee.
How Long Does a Guarantor Stay on the Loan?
The guarantor is only required until the borrower has built up at least 20% equity in the property. This typically takes 3-5 years, depending on loan repayments and property value growth. At that point, the borrower can refinance to remove the guarantor from the loan.
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FAQ
With a guarantor, borrowers can access up to 100% of the property’s value, eliminating the need for a deposit. Some lenders even allow extra borrowing for stamp duty and other costs if the guarantor’s equity is sufficient.
Yes, the guarantor can be released once the borrower has built up 20% or more equity in the home. This usually happens through loan repayments, property value increases, or refinancing.
If the borrower defaults, the lender may request partial repayment from the guarantor, but only for the secured portion of the loan. This is why it’s important to carefully structure the loan and ensure the borrower has financial stability.
Not all lenders provide guarantor loans, and each has different rules on who can be a guarantor and how much equity is required. Working with a mortgage broker ensures you find the best lender for your situation.
Guarantors don’t make repayments, but they are liable if the borrower fails to meet mortgage obligations. To minimise risk, guarantors should ensure:
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The loan is structured for quick release
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The borrower has stable income
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A clear repayment plan is in place
A mortgage broker can help protect both the borrower and the guarantor by structuring the loan correctly.
Freedom Mortgage Solutions welcomes your enquiry. To book an appointment or simply ask us a question, fill in your details and we'll be in touch soon!