Going Guarantor on a Home Loan — Risks for the Guarantor (2026)
Going guarantor on a family member’s home loan is one of the most significant financial commitments a person can make. It means that if the borrower cannot meet their repayments, the lender can pursue the guarantor — potentially forcing the sale of the guarantor’s property.
This is not a formality. Guarantors carry real financial and legal exposure. Understanding the risks fully before agreeing is essential.
What Is a Guarantor?
A guarantor provides security for another person’s home loan — typically by allowing the lender to take a charge over a property they own (often their home). This additional security:
- Allows the borrower to purchase with a smaller deposit (sometimes zero deposit)
- Eliminates the need for Lenders Mortgage Insurance (LMI) even at high LVR
- May allow the borrower to access a larger loan
The guarantor does not co-own the property being purchased. They simply provide their property as additional security for the loan.
Types of Guarantees
Full (unlimited) guarantee: The guarantor is liable for the entire loan amount. This is rarely required for family guarantee arrangements.
Limited (partial) guarantee: The guarantor’s liability is capped at a specific dollar amount — typically the gap between the borrower’s deposit and 20% of the property value. This is the most common structure for family guarantees.
Example — Limited guarantee on $650,000 purchase:
- Borrower deposit: 5% = $32,500
- 20% of purchase price = $130,000
- Guarantee amount = $130,000 − $32,500 = $97,500
- Guarantor’s property is used to secure only $97,500 of the loan — not the full $617,500
Most lenders offering family guarantee products use a limited guarantee structure.
Risks to the Guarantor
1. Financial liability if the borrower defaults If the borrower cannot make repayments and the lender sells the purchased property but recovers less than the outstanding debt, the lender pursues the guarantor for the shortfall — up to the guarantee amount.
2. Property at risk If the lender pursues the guarantor and the guarantor cannot pay, the lender can seek an order to sell the guarantor’s property. A guarantor who has signed their family home as security could lose that home if the borrower defaults and property values have fallen.
3. Reduced borrowing capacity A guarantee reduces the guarantor’s own borrowing capacity for the duration of the guarantee. Banks include the guaranteed amount as a potential liability when assessing the guarantor’s financial position.
4. Difficulty in releasing the guarantee Release of the guarantee requires the borrower’s LVR to fall below 80% (i.e., they have built sufficient equity). In a flat or falling property market, this may take longer than expected.
5. Relationship risk Financial obligations between family members can create significant strain if repayment difficulties arise. The legal and financial process of pursuing a guarantee can be deeply damaging to family relationships.
How to Limit Guarantor Exposure
Use a limited guarantee: Cap the guarantee at the minimum amount required — the gap between the borrower’s deposit and 20% of the property value. This is standard practice with reputable lenders.
Request a guarantor release schedule: Understand from the outset at what LVR or loan balance the guarantee can be released. Many lenders will release the guarantee once the borrower has 20% equity.
Get independent legal advice: Before signing a guarantee, have a solicitor independent of the borrower and lender review and explain the obligation. Many lenders require proof of independent legal advice as part of the guarantee process.
Assess the borrower’s financial position: A guarantor should be confident in the borrower’s ability to service the loan — not just at approval, but over the medium term given possible interest rate rises or income changes.
Who Can Be a Guarantor?
Most lenders restrict guarantors to immediate family members: parents, siblings, and sometimes grandparents. Some lenders also accept extended family in certain circumstances.
Guarantors typically need:
- Sufficient equity in their property (most lenders require at least 20% equity above the guarantee amount)
- A clean credit history
- Stable income (though some lenders allow retired guarantors if equity is sufficient)
When Is the Guarantee Released?
The guarantee is released when:
- The borrower’s LVR falls to 80% or below (through repayments, capital growth or a combination)
- The borrower makes a formal request for release
- The lender confirms the loan value against a new property valuation
In rising property markets, this can occur within 2–5 years. In flat markets, it may take longer. During this period, the guarantor’s property remains secured.
Guarantor vs Gifting Money
| Guarantor | Cash Gift | |
|---|---|---|
| Risk to parent | Significant — property at risk | Loss of gifted amount only |
| Effect on parent borrowing capacity | Reduces capacity for duration | No effect once transferred |
| Requirement | Equity in own property | Available cash |
| Ongoing involvement | Until guarantee released | None after transfer |
| Common use | No or minimal deposit | Supplement to deposit |
For parents in a position to do either, gifting a deposit or partial deposit is generally a lower-risk path than going guarantor. The financial exposure is known and finite — unlike a guarantee where future property values and defaults are uncertain.
Frequently Asked Questions
Can a guarantor be released from the guarantee? Yes. Once the borrower’s LVR falls below 80% (confirmed by a current valuation), the lender will release the guarantee on request. This may take several years depending on repayment progress and property value movements.
Does going guarantor affect the guarantor’s credit score? Not typically — being listed as a guarantor doesn’t appear on your credit file in the same way a debt does. However, if the borrower defaults and the lender pursues the guarantee, this can affect the guarantor’s credit file.
Can a retired parent be a guarantor? Some lenders accept retired guarantors if they have significant equity in their property. Each lender assesses differently — a mortgage broker can identify which lenders are most flexible on this.
Does the guarantor have any say in how the property is managed or sold? No. The guarantor provides security only — they have no ownership interest or say in the property. However, they should stay informed of the borrower’s financial position to avoid being caught off-guard by default.
Related Guides
- Gifted Deposit — Can Family Help With My Deposit?
- How Much Deposit Do I Need?
- First Home Guarantee (No LMI on 5% Deposit)
- First Home Buyer Hub
This article provides general information only. Guarantor obligations are legally binding and involve significant financial risk. Before signing a guarantee, obtain independent legal advice from a solicitor. For advice tailored to your situation, speak with a licensed mortgage broker or financial adviser. Find one through MoneySmart.