Guarantor Home Loans: Frequently Asked Questions
Guarantor home loans can be a powerful way for families to help buyers enter the property market sooner, but they often raise a lot of questions. Below are the most common questions borrowers and guarantors ask before committing to this type of loan. Understanding the answers can help everyone involved make informed and confident decisions.
What Is a Guarantor Home Loan?
A guarantor home loan is where a family member provides additional security for part of a borrower’s loan using equity in their own property. This reduces the lender’s risk and can allow the borrower to buy with a smaller deposit.
Who Can Act as a Guarantor?
Most lenders only accept close family members, such as parents or grandparents. Some lenders may accept siblings or other relatives, but friends are rarely accepted.
Does a Guarantor Own Part of the Property?
No. A guarantor does not go on the property title and does not own any portion of the home. They are only providing security for part of the loan.
How Much of the Loan Does the Guarantor Cover?
In most cases, lenders use a limited guarantee. This means the guarantor only secures a specific portion of the loan, often the amount above an 80% loan-to-value ratio.
Can a Guarantor Help Avoid Lenders Mortgage Insurance?
Yes. By reducing the effective loan-to-value ratio, a guarantor can often help borrowers avoid paying lenders mortgage insurance. This depends on how the loan is structured and lender policy.
Does a Guarantor Increase Borrowing Power?
A guarantor can help overcome deposit limitations, but they do not replace serviceability requirements. The borrower must still be able to afford repayments based on their own income and expenses.
How Long Does a Guarantor Stay on the Loan?
Guarantors usually remain in place until the borrower has enough equity to remove them, often when the loan-to-value ratio falls to 80% or below. Removal usually requires refinancing.
What Happens If the Borrower Can’t Repay the Loan?
If repayments can’t be met and hardship options fail, the lender may call on the guarantor to cover the guaranteed portion. This is why guarantees carry real financial responsibility.
Can a Guarantor Loan Affect the Guarantor’s Borrowing Power?
Yes. Lenders may treat the guaranteed amount as a potential liability, which can reduce the guarantor’s ability to borrow or refinance in the future.
Are There Alternatives to Guarantor Loans?
Yes. Alternatives include family gifts, using family equity without a formal guarantee, shared ownership arrangements, or government low-deposit schemes.
Why This Matters for Australian Families
Guarantor loans can be helpful, but they involve legal and financial obligations that affect both borrowers and guarantors. Clear understanding upfront helps avoid stress, disputes, and long-term complications.
How The Finance Brokers Can Help
The Finance Brokers help families understand guarantor loans in plain English, compare lender options, structure limited guarantees, and plan clear exit strategies to reduce risk.
Still Have Questions About Guarantor Loans?
If you’re considering a guarantor loan — whether as a borrower or guarantor — getting personalised advice can help you decide if it’s the right option.
Book a free consultation with The Finance Brokers
Final Thoughts
Guarantor home loans can open doors sooner, but they must be approached carefully. Asking the right questions — and understanding the answers — helps families move forward with confidence and clarity.
