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How does a guarantor loan actually work?
Bayley Clarke · Mortgage broker on the road · Last checked 18 August 2026 · 5 min read
The short answer
A guarantor, usually a parent, offers the equity in their own property as extra security for your loan. No cash changes hands. The loan is yours, the repayments are yours, and their home just sits behind it as a safety net.
Set up properly, the guarantee is limited to the deposit shortfall, not the whole loan, and it gets released once you've paid down enough and your property has grown enough that you hold your own equity. It's a leg-up with an exit, not a lifelong tie. The catch is that the risk to your guarantor is real, which is why the rest of this page exists.
Doesn't my guarantor have to hand over money?
No, and this is the part almost everyone gets wrong. A guarantor doesn't hand over a cent. No cash, no gift, no raiding their savings or their super.
What they do is let the bank take a limited slice of the equity in their own home as backup security for your loan. That slice fills the gap where your deposit falls short of the roughly 20 per cent lenders like to see, which usually means you skip Lenders Mortgage Insurance as well, and that can run into the thousands. Their savings stay their savings. Their mortgage, if they have one, doesn't change. On a normal week they'd never know the guarantee exists.
Who can actually be a guarantor?
Usually Mum and Dad. Most lenders want an immediate family member with decent equity in their own property. Some will stretch to siblings or grandparents, but parents are the standard case and the smoothest path through credit.
Every lender will also make your guarantor get their own independent legal advice before they sign, from a solicitor who acts for them, not for you. It adds a step and a small cost, and I'm glad the rule exists. It means the person backing you signs with their eyes open, not because a bank or a keen kid rushed them.
Are they on the hook for my whole loan?
They shouldn't be, and this is where the word limited earns its keep. A properly structured guarantee is capped at the shortfall, not the entire mortgage. If your deposit covers part of what the bank wants and the guarantee covers the rest, their exposure is that gap and nothing more.
A defined, contained number instead of an open cheque against your whole loan. Getting that cap as small as possible, and picking a lender that treats guarantors sensibly, is a big part of what I do before anyone puts pen to paper.
What if I can't pay?
This is the question your parents are quietly asking, so let's answer it straight. If you miss repayments, the bank chases you first, works through hardship options with you, and only comes after the guaranteed slice of your guarantor's property if the loan defaults and the sale of your place doesn't cover it. It's the last resort, but it's a real one. Their home is genuinely on the line for that capped amount.
That's why I won't set one of these up on hope. The loan has to service comfortably on your income alone, with a buffer, before the guarantee even enters the conversation. The guarantee fixes a deposit problem. It cannot fix a repayment problem, and using it to paper over one is how families get hurt.
When does my guarantor get released?
A guarantee isn't a life sentence, and this matters more than most people realise. As you pay the loan down and the property grows in value, you build your own equity, and once you hold enough of it the guarantor comes off. We order a revaluation, the bank releases its hold on their property, and it's handed back free and clear.
The trigger point is usually once you're down to roughly 80 per cent of the property's value, but every lender draws the line differently, so I track it rather than leaving it to you to remember. For a lot of my clients it happens faster than they expected. The guarantee gets them in the door, and a few years later it quietly falls away.
Does this mean I can buy with no deposit?
Sometimes, yes. With a strong enough guarantee some lenders will fund the full purchase price and even the costs on top. It's a bigger question with its own traps, so it has its own page: can I buy a property with a $0 deposit?
When I'd tell you not to do it
- Your income is the problem, not your deposit. If the repayments only work on best-case numbers, a guarantee just moves the risk onto your parents. Fix serviceability first.
- Your guarantor has plans for their equity. Tying it up can dent their own borrowing power. If they're looking at renovating, downsizing or buying an investment property in the next few years, that comes first.
- They're close to retirement with no exit plan. A guarantor near the end of their working life carrying risk they can't earn their way out of is a structure I'd rather not build.
- The family dynamics are already tense. Money between family strains relationships when it isn't handled with eyes wide open. If the guarantee would sit at the Christmas table like a loaded question, the cheaper option is to wait and save.
Want to see how it'd look for your family?
Half an hour and I'll run it in front of you. Your numbers, the size of the guarantee, exactly what your parents would be signing and when they'd come off. Bring them on the call if you want, most people do, and if it's not the right structure for you I'll say so.
No application, no credit check, nothing on your file. Just the numbers.
Next question
Can I buy a property with a $0 deposit?The guarantee is the main road in. Here's how far it can actually take you, and where the traps are.
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