A guarantor home loan lets you use part of a relative's home equity as extra security, usually through a limited family guarantee.
You still need enough income to repay the whole loan. The guarantee can replace some or all of a cash deposit, but it cannot replace income.
How a Family Guarantee Supports Your Loan
The family guarantee adds a relative's property as security for your borrowing. The relative keeps ownership of their home and promises to cover an agreed amount if you cannot repay.
Lenders use names such as family equity loan, family guarantee and family pledge for this structure. It is a lender product, with terms set by the lender.
It differs from a cash gift because your relative does not hand you the deposit. Enough accepted security can reduce or remove lenders mortgage insurance (LMI), which protects the lender against a shortfall after default.
How a Guarantee Can Be Structured
The lender takes a mortgage over the property you buy and limited security over the guarantor's home. An existing mortgage on the guarantor's home can mean a second mortgage behind their own lender.
The existing lender must accept the proposed arrangement where its consent is required. Available equity, property values and existing debt decide whether the structure works.
A security guarantee describes the property backing the promise. A family guarantee describes the relationship between borrower and guarantor. A limited guarantee describes how much liability the contract covers.
These labels can describe the same arrangement. Read the stated dollar cap alongside any interest and enforcement costs the contract permits the lender to recover.
For a hypothetical purchase, a buyer borrows $600,000 against a home valued at $600,000. Their parents provide a limited guarantee secured against their own home.
The buyer still owes $600,000 and makes every scheduled repayment. The lender calculates the required guarantee under its own policy, using the available security and the buyer's contribution.
Guarantor, Co-Borrower or Cosigner?
A guarantor provides extra security without gaining ownership of the purchased property. Under a limited family guarantee, their exposure is the contractual limit and any permitted additional amounts.
A parent who takes a joint home loan with their child becomes a co-borrower. Their accepted income counts towards serviceability and each borrower can be responsible for the full debt.
In a joint purchase, the parent also shares ownership through the property title. Record the ownership shares separately from the loan obligations, because a smaller ownership share does not cap a co-borrower's debt liability.
“Cosigner” is a US label. Australian documents identify the person's actual role as guarantor or co-borrower. The signed loan, guarantee and title documents determine the obligations.
Before signing, both households need a protection plan:
- Obtain independent legal advice, with separate advice for the guarantor.
- Read the liability cap, additional amounts and written release conditions.
- Agree how the guarantor will receive repayment updates and learn about arrears.
- Plan who acts if repayments stop or a family relationship changes.
A family agreement does not remove obligations to the lender. Parents considering co-ownership also need advice on the tax and estate consequences of their ownership share.
Qualifying With a Family Guarantee
The borrower must pass the lender's ordinary credit and serviceability assessment. A parent's usable equity cannot make an unaffordable repayment affordable.
The lender checks income, living expenses, existing liabilities and credit history. It values both properties and applies its rules for eligible relationships, property locations and guarantee limits.
Usable equity is the portion the lender accepts after allowing for existing debt and its security limits. It can be less than the home's value minus its mortgage balance.
The application covers two households. Collect the borrower's financial evidence and the guarantor's identity, ownership and existing-loan details with their consent.
Obtain the valuations and proposed guarantee documents before arranging independent legal advice. A valuation shortfall can increase the required contribution or prevent approval.
Lender policy sets the guarantee terms across Australia. State and territory rules separately affect transfer duty, grants and conveyancing, so the transaction costs depend on where you buy.
Guarantor Home Loans Without a Deposit
Some lenders accept a family guarantee for borrowing at or near the full purchase price. Funding purchase costs as well depends on the product and the guarantor's usable equity.
St.George's Family Pledge page describes lending up to the purchase price plus costs, subject to credit criteria. That is a product option, not an entitlement across the market.
A no-deposit structure still needs a complete settlement budget. Identify which costs the loan covers and which need cash, including conveyancing, duty and moving expenses.
The borrower must afford the larger balance. A guarantee does not pay the loan down or cover a gap between the approved funds and the amount needed at settlement.
Loan Types That Work With a Guarantee
A family guarantee can support different loan types when the lender permits them. Compare the repayment structure separately from the guarantee.
A variable rate can rise or fall. Product rules determine offset access, extra repayments and whether you can withdraw additional repayments through home loan redraw.
A fixed rate gives repayment certainty during the fixed term. It can be a suitable choice for a defined budget, but break costs can apply to early repayment or refinancing.
Fixed products also have their own limits on extra repayments and offset accounts. A split loan divides the balance between fixed and variable portions.
An interest-only period defers principal repayments, so the scheduled payments do not reduce the debt during that period. The later repayment rises when principal must be repaid over the remaining term.
Compare that step-up with principal-and-interest mortgage repayments before relying on the lower starting payment. Interest-only availability depends on the lender's product and assessment.
Advantages, Costs and Risks for Both Families
A family guarantee can help a buyer purchase sooner and keep cash available after settlement. Avoiding LMI removes a premium, while a larger loan increases the debt on which interest is charged.
Retained savings can fund moving expenses or an emergency buffer. Compare that benefit with the total interest and repayments on the larger balance.
The guarantor's property is exposed if the borrower defaults and the lender enforces the guarantee. A limited guarantee can still require a large payment, including additional amounts allowed by the contract.
If the guarantor cannot pay, their property can be sold. Westpac's family guarantee guidance explains this risk and the possible reduction in the guarantor's own borrowing capacity.
The commitment can affect a parent's ability to refinance, move home or help another child. It can also disrupt retirement plans if the guarantee remains in place longer than expected.
Each household needs separate advice about its own exposure. Set a review point for the guarantee and keep enough time for the guarantor to read the documents without settlement pressure.
St.George Family Pledge
St.George Family Pledge lets eligible relatives guarantee a specified part of a home loan. Eligible guarantors include parents, siblings, sons and daughters.
No single guarantee can exceed 50% of the guarantor's security. Credit criteria still determine whether the proposed amount and property are acceptable.
Family Pledge is available with eligible variable and fixed loans, including split options. The guarantor can request release when the borrower is not in default and the remaining balance meets St.George's no-LMI credit criteria.
St.George states that the option has no extra Family Pledge fee, although standard guarantee and legal fees apply. Its wider credit rules are covered in St.George's lending policy.
When and How a Guarantor is Released
Release requires the lender to approve the request and complete the release documents. Repaying part of the loan or reaching an estimated equity level does not automatically end the guarantee.
The lender reassesses the revised loan-to-value ratio (LVR), repayment conduct and borrower serviceability. It can require a fresh valuation before deciding whether the remaining security is sufficient.
For a hypothetical $600,000 home valuation and $480,000 balance, the standalone LVR is 80%. That calculation alone does not establish eligibility for release.
The lender's accepted valuation and release policy decide the result. See how loan-to-value ratio is calculated before estimating the release position.
Follow these five steps to request release:
- Request the current balance and copies of the signed guarantee documents. Confirm which loans and securities the guarantee covers.
- Estimate the property's value and revised LVR without the guarantee. A lender valuation must support the final calculation.
- Reassess the borrower's capacity using current income, expenses and debts. Identify any repayment issues before applying.
- Compare a variation with refinancing. Include valuation costs, discharge and registration charges, legal costs and any fixed-rate break cost.
- Submit the release request and wait for written approval and completed release documents. Keep paying the loan while the lender processes the request.
A partial release reduces the guaranteed amount or releases only some security. A full release ends the covered guarantee obligations on the terms of the release.
Reducing the balance or obtaining a higher accepted valuation can improve the position. Refinancing can also remove the guarantee if the new loan is approved without it.
Compare the full refinancing cost with a variation through the existing lender. If the request is declined, obtain the reason and the balance, valuation or repayment condition needed for reassessment.
ANZ's discharge guidance requires a separate request for the guarantor's security. It also explains that paying out a loan does not automatically discharge its mortgage or release guarantors.
A deed of release is a legal document recording the obligations and parties the lender releases, subject to its stated terms. Lenders can use different release documents and forms.
Allow for valuation, discharge and registration costs where applicable. Keep the signed release with the loan records and obtain confirmation that the guarantor's mortgage security has been discharged where required.
Ways to Buy Without Risking a Relative's Property
A low-deposit loan or government support can help you buy without giving the lender security over a relative's home. Each option has different eligibility and long-term costs.
The Australian Government 5% Deposit Scheme has unlimited places and no income caps for eligible applicants. Property price caps and lender approval still apply.
Eligible first home buyers generally need a minimum 5% deposit. Eligible single parents and legal guardians can qualify with 2%, subject to the scheme's separate conditions.
The government guarantee avoids LMI without involving a relative's property. Compare it with other low-deposit home loan options, including loans where you pay LMI.
A shared equity home loan reduces initial borrowing because an equity partner funds part of the purchase in exchange for a share of the property's future value.
Saving a larger deposit, buying a cheaper property or receiving an affordable cash gift can also reduce the need for a guarantee. Compare the repayments and ownership terms before committing either household.
