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What is a guarantor home loan?

What is a guarantor home loan?

Published Fri 3 May 2024 • 6 min read

A guarantor home loan could be your ticket to buying your home sooner rather than saving a traditional 20% deposit or to avoid paying lenders mortgage insurance (LMI) with a smaller deposit.

What is a guarantor home loan?

A guarantor home loan is when someone other than you – known as 'the guarantor' – offers some of their home equity to secure a home loan for you.

Having a guarantor means you could access a home loan faster as you won’t need a 20% deposit and can potentially avoid LMI.

How does a guarantor home loan work?

Let’s say you’ve received pre-approval for a $700,000 home loan. For a 20% deposit you’ll need to save $140,000 but so far, you’ve only saved $60,000 or 8.5% of the loan value.

Your parents’ family home has recently been valued at $750,000. As they have held on to the property for a number of years, they now have enough equity in their property to offer $80,000 as security for your loan.

The equity combined with your savings means you now have a 20% deposit.

Find out how much you could borrow. In only two minutes you could have an obligation-free indication of your borrowing power.
Start your application online or call us on 1800 100 258, 8am-8pm Mon-Fri and 9am-5pm Sat (AEST/AEDT).

Who can be a guarantor?

Because being a guarantor is a significant responsibility, they are often a family member or someone you really trust – and who trusts you.

However, it’s important to know if you’re unable to meet your loan repayments, the guarantor becomes responsible for them, which is why they should seek professional advice before entering a guarantee.

What are the benefits of a guarantor home loan?

  • You can buy your home sooner as you may not need to save a full 20% deposit.
  • You can access a home loan in a situation where you may not be able to without a guarantor.
  • You could avoid paying LMI costs.
  • You may be able to borrow more than if you relied on your finances.
  • The guarantor may be removed from the loan once the guarantee's value has been repaid or your home's equity has increased enough.

What are the risks of a guarantor home loan?

  • If you can’t repay your home loan, the guarantor becomes responsible.
  • If both the guarantor and you cannot repay the loan, there’s a chance the guarantor could lose their property.
  • The guarantor's borrowing power could be impacted.
Find out how much you could borrow. In only two minutes you could have an obligation-free indication of your borrowing power.
Start your application online or call us on 1800 100 258, 8am-8pm Mon-Fri and 9am-5pm Sat (AEST/AEDT).