Key takeaways
- A guarantor (usually a parent) offers equity in their own home as additional security — not cash.
- It can eliminate LMI and let you buy with little or no saved deposit.
- The guarantee is usually limited to a portion of the loan, not the whole thing.
- Guarantors can be released once you’ve built enough equity — typically when the loan falls below 80% of the property value.
The “bank of mum and dad” doesn’t always mean handing over cash. A security guarantee lets family help without spending a dollar — but it puts their property partially on the line, so it has to be done with clear eyes on both sides. Here’s the full picture.
How a security guarantee works
The lender takes two securities for your loan: the home you’re buying, plus a limited guarantee secured against the guarantor’s property. The guarantee typically covers just the gap — the difference between your deposit and a safe 80% LVR — not the whole loan. With that gap covered, the lender treats you as a sub-80% borrower: no LMI, sharper rates, and in many cases no cash deposit required at all (though you’ll still need funds for stamp duty and costs, unless those are borrowed too).
What it does for the buyer
- Buy years sooner — no waiting to save 10–20%.
- No LMI — often a five-figure saving.
- Better rates — you’re priced as a low-LVR borrower.
- Keep savings intact for costs, a buffer, or the move itself.
What the guarantor is really signing up for
If the borrower defaults and the sold property doesn’t cover the debt, the lender can call on the guarantor for the guaranteed portion — ultimately against their home. Lenders require guarantors to get independent legal advice before signing, and that’s not a box-tick: it’s the safeguard. A good guarantee is a limited one, with a clear number on it, an exit plan, and a family conversation where the worst case is said out loud.
Our rule in guarantor conversations: the arrangement has to survive the worst case, not just the expected one. If the numbers only work when everything goes right, we’ll say so — to both generations.
Releasing the guarantor
The guarantee isn’t forever. Once your loan balance falls below about 80% of the property’s value — through repayments, price growth, or both — you can apply to have the guarantee released. Many families get there within a few years. We diarise it and run the numbers annually so the release happens as early as possible.
Alternatives worth comparing
A gifted deposit (cash, usually with a signed letter confirming it’s non-repayable), first home buyer schemes (5% deposit, no LMI, no family exposure — see our first home buyer guide), or simply paying LMI on a smaller deposit. Each shifts risk differently between buyer, family and insurer — the right pick depends on the family’s finances and appetite.
Talk it through — both generations welcome
Book a free call and bring your parents (or your kids). We’ll map the guarantee, the risks, the release plan and the alternatives, so everyone commits with eyes open.
Book your free game plan callFrequently asked questions
Does the guarantor need income, or just equity?
Primarily equity in their property and clear title (or a small remaining mortgage). Some lenders also consider the guarantor’s age and circumstances — retirees can face extra scrutiny. Different lenders have very different guarantor policies, which is where we come in.
Can the guarantor limit how much they’re exposed to?
Yes — and they should. Guarantees are typically limited to a fixed portion (the gap to 80% LVR plus costs), not the whole loan. The limit is written into the guarantee documents, and independent legal advice is required before signing.
What if my parents still have a mortgage on their home?
Often still workable — what matters is the equity available after their existing loan. Some lenders handle “second mortgage” guarantor structures behind another bank; policies vary widely, so lender choice matters more than usual here.
This guide is general information only and does not take your personal circumstances into account. It is not financial or credit advice. Government schemes, lender policies and rates change over time and eligibility criteria apply. Speak with us for advice tailored to your situation.