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    Guarantor Loan

    Use a family member's property equity to avoid LMI and boost your deposit

    What is Guarantor Loan?

    A guarantor loan allows a parent or close family member to use equity in their own property as additional security for your loan. This can allow you to borrow up to 105% of the purchase price (covering stamp duty and costs) without paying LMI, even with a small or no deposit.

    How it works

    1. 1Your guarantor (usually a parent) offers their property equity as additional security
    2. 2The guarantor's property secures a portion of your loan, typically just enough to bring LVR to 80%
    3. 3You borrow above 80% LVR but avoid LMI, because the shortfall is secured by guarantor property
    4. 4Guarantor is only liable for the "guarantee portion": typically $50,000–$150,000, not the full loan
    5. 5Once your equity grows to 20%, you can release the guarantor from the loan

    Worked example

    Purchase price: $650,000. Your deposit: $30,000 (4.6%), so the loan would be 95.4% of the price.
Without a guarantor: above most lenders' 95% limit. At 95% LVR, LMI would be about $22,800 by our LMI calculator.
With a limited guarantee: a parent guarantees $100,000, secured on their property.
Your $30,000 deposit + the $100,000 guarantee cover the first $130,000.
Effective LVR: ($650,000 – $130,000) ÷ $650,000 = 80%. No LMI.
The guarantor is exposed to $100,000, not the whole $620,000 loan.

    Pros

    • Avoid LMI, saving $15,000–$30,000+
    • Enter property market sooner without a full 20% deposit
    • Limited guarantee means guarantor's exposure is capped
    • Guarantor released once your own equity reaches 20%, through repayments or growth

    Cons

    • Guarantor is legally liable for the guarantee amount if you default
    • Can create family tension if repayments become difficult
    • Guarantor's borrowing capacity is reduced while guarantee is in place
    • Guarantor's property is at risk. They should obtain independent legal advice

    Risks

    • If you can't repay, the lender can pursue the guarantor for the guarantee amount
    • Guarantor must obtain independent legal advice (required by most lenders)
    • If guarantor needs to sell their property, they may need to release the guarantee first
    • Property value falls: LVR may not improve to 80% as quickly as expected, extended exposure

    Tax treatment

    No immediate tax implications for guarantor. If guarantor is called upon and pays the debt, they may have a loan to you. This may create gift tax or CGT implications depending on the structure. Seek specialist advice if this occurs.

    Official references

    Keep exploring

    Read property guides on the blog All strategies

    General Advice Warning

    The information on this site is general in nature and does not consider your personal circumstances, financial situation, or needs. Before acting on any information, you should consider its appropriateness having regard to your own situation and seek professional advice from a licensed financial adviser, mortgage broker, accountant, or solicitor.