Guarantor Loans — How They
Work in Australia

How the guarantee works

With a guarantor loan, the lender takes security over both your property and a portion of the guarantor's property. The guarantee typically covers the difference between your deposit and 20 per cent of the purchase price — essentially, the amount that would otherwise trigger LMI. Once you have built enough equity (usually by paying down the loan or through property value increases), the guarantee can be released and the guarantor's property is no longer at risk.

Risks for the guarantor

Guarantors need to understand the risks clearly. If you default on the loan, the lender can take action against the guarantor's property to recover the guaranteed amount. The guarantee may also affect the guarantor's own borrowing capacity. Before agreeing to guarantee a loan, guarantors should seek independent legal advice.

When to consider a guarantor loan

Guarantor loans make sense when you have a stable income and can comfortably afford the repayments, but have not yet saved a full 20 per cent deposit. They are common among younger buyers who earn well but have not had time to accumulate savings, particularly in markets where property prices have been rising faster than savings can grow.

Read our LMI guide for other ways to avoid LMI, or see our complete home loans guide for the full picture. First home buyers should also read our Perth first home buyer guide.

Frequently asked questions