Guarantor Home Loans & Family Pledge Guide
Our mission is simple: give every customer greater certainty and confidence to explore every reasonable pathway towards the right customised lending solution.
Could family support help you buy a home sooner?
Saving for a home can be difficult, especially when the deposit required seems to keep moving further away. For some eligible Australians, support from a parent or other acceptable family member may provide another pathway.
A guarantor home loan, sometimes described as a Family Pledge, can allow a family member to provide a guarantee and potentially use equity in property they own as additional security supporting the borrower. That can help address a deposit or security gap. But a guarantee is a serious legal and financial commitment.
That is why Mortgage House believes the starting question should not simply be: “Can we use a guarantor?”. It should be: “What is the most appropriate pathway for the borrower and the family members involved?”
We aim to make the process as easy as possible. Our goal is to give you the certainty and confidence to explore every reasonable pathway towards the right customised home loan solution.
What is a guarantor home loan?
A guarantor home loan is a lending arrangement where another person agrees to guarantee specified obligations of the borrower. Depending on the approved structure, the guarantor may also provide property they own as additional security.
This additional security can sometimes help an eligible borrower who:
- Has sufficient income to service a home loan
- Can demonstrate suitable borrowing capacity
- Has limited savings for a deposit
- Wants to purchase sooner
- Wishes to investigate alternatives to LMI
- Does not yet have enough equity or cash to meet the lender’s standard security requirements
The exact arrangement depends on the borrower, guarantor, property, loan amount, valuation, product, lending policy and credit assessment. A guarantor arrangement is therefore not an automatic approval mechanism. The borrower still needs to satisfy Mortgage House’s applicable lending requirements.
Two people. Two very different decisions.
A properly explained guarantor home loan must address the borrower and guarantor separately.
If you are the borrower
You need to understand:
- Your deposit
- Your borrowing capacity
- Your ability to meet repayments
- The property being purchased
- The additional security being offered
- Your LVR
- Your loan structure
- Your ongoing repayment obligations
- How and when the guarantee might eventually be released
If you are considering becoming the guarantor
You need to understand:
- Exactly what you are guaranteeing
- The maximum amount of any guarantee
- Whether the guarantee is limited or broader
- Which of your assets are being offered as security
- The circumstances in which the lender may enforce the guarantee
- The possible consequences for your property and finances
- The effect on your own future borrowing
- How release from the guarantee works
- Why independent professional advice may be appropriate
Six things to understand
Your deposit
A guarantor arrangement may help address a shortage in the amount of deposit or security you would otherwise need. It does not mean deposits no longer matter. Your available savings can still affect:
- The amount you need to borrow
- Your LVR
- Product availability
- Total repayments
- Interest costs
- Fees
- Financial buffer after settlement
- The amount of family support required
A larger deposit generally means a smaller loan, all else being equal. Compare your deposit options before choosing a guarantee.
Your borrowing capacity
Borrowing capacity is an estimate of how much you may be able to borrow based on your financial circumstances and applicable lending criteria.
Factors may include:
- Income
- Employment
- Regular living expenses
- Existing debts
- Credit limits
- Dependants
- Existing property commitments
- Proposed repayments
- Applicable interest-rate assumptions
- Other relevant financial obligations
A guarantor does not simply turn an unaffordable loan into an affordable one. Check your approximate borrowing power.
Your serviceability
Being able to find the deposit and being able to comfortably repay a home loan are two different things. Mortgage House will assess lending applications in accordance with applicable credit requirements.
You should also ask yourself:
- Could I meet repayments if interest rates increased?
- Do I have an emergency buffer?
- What happens if my expenses increase?
- What if my income temporarily decreases?
- Am I relying on overtime, bonuses or irregular income?
- Will my circumstances change after purchasing?
The right loan is not simply the largest amount available. It should be an amount you can reasonably manage.
The security
The property you purchase will ordinarily form part of the security for the home loan. A guarantor arrangement may introduce additional security, commonly involving equity in property belonging to the guarantor.
That creates a direct connection between the borrower’s loan and property owned by someone else. Everyone involved should understand that clearly before proceeding.
Your LVR
LVR means loan-to-value ratio. A simplified calculation is:
Loan amount ÷ lender-accepted property value × 100
Example:
- Property value accepted by lender: $800,000
- Loan amount: $640,000
- LVR: 80%
LVR can influence:
- Available products
- Interest rates
- Deposit requirements
- LMI
- Risk fees
- Security requirements
- Approval conditions
- Potentially when additional security may be released.
The lender may rely on its own accepted valuation rather than the purchase price or an online estimate.
Your loan structure
The appropriate structure may involve decisions about:
- Fixed or variable interest
- Principal-and-interest repayments
- Eligible interest-only arrangements
- Split lending
- Offset facilities
- Redraw
- Loan term
- Repayment frequency
- Additional repayments
- How the guaranteed portion is structured
The aim should be to solve the customer’s broader lending requirement—not merely the deposit problem.
Guarantor: what are you really agreeing to?
Becoming a guarantor is a major decision. A family relationship does not reduce the legal effect of a guarantee.
Before agreeing, a prospective guarantor should understand the actual documents, not rely solely on informal family discussions about what everyone expects to happen.
What is being guaranteed?
This is one of the most important questions. Do not assume. The relevant documents should establish matters such as:
- The obligation being guaranteed
- The amount covered
- Any interest, fees or enforcement costs potentially captured
- The security supporting the guarantee
- The circumstances in which it can be enforced
- The circumstances in which it may be released
Limited versus broader guarantees
Some structures may permit a guarantee to be limited to an agreed amount. That can be materially different from guaranteeing a much broader obligation. A limited guarantee does not mean there is no risk.
It means the agreed scope of the guarantee may be restricted. The formal documents ultimately matter. Prospective guarantors should understand exactly what they are signing.
Your security exposure
Where a guarantor provides property as supporting security, that property is not simply being used as an administrative reference. It may become exposed if the borrower defaults and the guaranteed obligations cannot otherwise be satisfied.
This makes a guarantor arrangement fundamentally different from giving a family member encouragement or helping them complete an application. There can be real property and financial consequences.
What could happen if the borrower cannot repay?
The consequences depend on the loan, guarantee, security documents, circumstances and applicable law. However, a guarantor should contemplate the possibility that:
- The borrower may default
- Recovery action may be taken
- Secured property may need to be sold
- Sale proceeds may be insufficient
- The guarantor may be called upon under the guarantee
- The guarantor's secured asset may ultimately be at risk
- Their future borrowing capacity or financial position may be affected
This is why the decision should be made carefully rather than treated as a formality.
Independent legal advice matters
Mortgage House supports prospective guarantors understanding their position before signing. Independent legal advice can help a guarantor understand:
- The guarantee
- The security documentation
- The extent of potential liability
- Enforcement rights
- Possible consequences
- Available protections
- The conditions applying to eventual release
Moneysmart expresses the central principle very clearly: “Treat it like you’re taking out the loan for yourself.” And: “Get advice before you sign.”
A prospective guarantor may also wish to obtain independent financial, tax or other professional advice appropriate to their circumstances.
Can a guarantor be released later?
Potentially. A guarantee is not necessarily intended to remain in place forever, but release should never be assumed. Depending on the arrangement and lending requirements, Mortgage House may consider matters such as:
- Current loan balance
- Current property value
- Resulting LVR
- Repayment performance
- Borrower circumstances
- Applicable credit requirements
- Remaining security
- Current product policy
For example, if the borrower reduces the loan balance and/or the property increases in value, the resulting LVR may improve.
That may create an opportunity to request a review of the guarantee. A release requires lender approval. Do not make financial decisions on the assumption that a guarantee will automatically end on a particular date.
A guarantor does not replace responsible lending
This point is critical. Additional family security may help address a security or deposit gap. It does not automatically solve:
- Inadequate income
- Excessive existing debt
- Poor serviceability
- Unsuitable loan structure
- An inability to meet lending criteria
Mortgage House must still assess the lending application. That is good for everyone involved. A sustainable borrower is the strongest protection against the guarantee ever needing to be relied upon.
Example: how a Family Pledge may help
Assume a borrower wants to buy a property but does not yet have the deposit ordinarily required for their preferred lending structure. Their parents own a home with available equity. Subject to assessment, an approved guarantor structure might allow an agreed portion of that parental property equity to provide additional security.
This may enable the borrower’s application to be assessed using a different security position than would otherwise be available. But there are two separate tests:
Borrower test
Can the borrower demonstrate the capacity to responsibly service the proposed loan?
Guarantor test
Is the proposed guarantor and additional security acceptable, and does the guarantor fully understand and accept the resulting obligations?
Both matter.
What are the alternatives to a guarantor?
A good lending conversation should not start and finish with Family Pledge. Mortgage House aims to explore every reasonable available pathway.
1. Save a larger deposit
Waiting and saving more can:
- Reduce the amount borrowed
- Improve LVR
- Reduce family exposure
- Potentially widen product choice
- Reduce repayments
The trade-off is the additional time required before purchasing.
2. Lenders Mortgage Insurance
Some higher-LVR home loans may use Lenders Mortgage Insurance — LMI. LMI generally protects the lender rather than the borrower. The borrower will commonly bear the cost of the premium where applicable. For some customers, using LMI may be preferable to involving family property.
For others, a guarantor arrangement may be worth considering. Compare the complete position rather than assuming one is automatically better.
3. Mortgage House Risk Fee pathways
Mortgage House also offers eligible higher-LVR lending pathways under which a Risk Fee may apply rather than traditional external LMI. Availability depends on the particular Mortgage House product and the customer’s circumstances.
Potential benefits can include:
- One lender assessment pathway
- Fewer external approval dependencies
- Clearer upfront visibility of the applicable fee
- A lending solution designed specifically for eligible low-deposit customers
A Risk Fee is not insurance for the borrower and does not eliminate the risks associated with high-LVR borrowing. Ask Mortgage House for the current rate, fees, eligibility requirements and written product information applicable to your circumstances.
4. Government home buyer assistance
Australian Government and state or territory programs may assist eligible buyers. Programs, eligibility, participating lenders, property-price caps and other conditions can change.
Check the current government eligibility requirements rather than relying on old articles or previous scheme settings. A Mortgage House Lending Specialist can also explain which Mortgage House pathways are currently available to you.
5. Buy at a lower price
Reducing the target purchase price can reduce:
- Required loan amount
- Deposit gap
- Repayments
- LVR pressure
- The amount of additional security potentially required
Sometimes the most effective lending solution begins with adjusting the property target.
6. Continue saving
Buying sooner is not automatically better. For some customers, postponing a purchase while building savings and improving their financial position may be the stronger option.
7. Consider a different loan structure
A different product, property strategy, borrower structure or lending pathway may provide a better solution. That is why Mortgage House recommends exploring the customer’s overall position rather than forcing every borrower into the same product.
Guarantor vs LMI vs Mortgage House Risk Fee
| Pathway | Property involved? | Potential Additional Cost | Main Purpose |
|---|---|---|---|
| Guarantor / Family Pledge | Potentially Yes | Depends on structure and costs | Adds acceptable supporting security |
| LMI | Generally no family guarantee required | LMI premium may apply | Protect lenders against certain loss |
| Mortgage House Risk Fee Pathway | Generally no family guarantee solely because of the risk fee | Risk fee applies | Provides an eligible higher-LVR lending pathway |
| Larger Deposit | No | Opportunity cost of waiting/saving | Reduces amount and LVR |
| Government Assistance | Usually no family guarantee solely because of scheme | Depends on scheme | Helps eligible buyers enter market |
This is a decision framework, not a guarantee of eligibility. Products, conditions, fees and credit criteria apply.
The best application starts with accurate information
Providing recent and accurate supporting documents can help Mortgage House understand your position and minimise avoidable back-and-forth. Depending on the borrower and proposed structure, documentation may include:
Borrower
- Identification
- Income evidence
- Employment information
- Bank statements
- Savings evidence
- Current debts
- Credit limits
- Existing home loan statements
- Property information
- Purchase contract where available
- Information relevant to expenses and financial commitments
Potential guarantor
Additional information may be required to establish matters such as:
- Identity
- Property ownership
- Existing mortgage debt
- Available equity
- Property information
- Financial obligations
- The proposed security structure
- Other information relevant to the guarantee
Exact requirements depend on the application. The more accurate the information, the better our ability to assess the available pathway.
Use the Mortgage House decision tools
You do not need to decide which home loan you need before speaking with us. Start by understanding your position.
Estimate repayments
See how different loan amounts, terms and rates may change repayments.
Compare your deposit position
Understand how your available deposit may affect your lending scenario.
Review your household budget
Better visibility over income and expenditure can improve lending preparation.
A Home Loan Health Check for you, your family and friends
The Mortgage House Home Loan Health Check can also be a valuable starting point for family members considering helping a borrower. A health check may help identify:
- Current home loan balance
- Interest rate
- Property position
- Available equity
- Loan structure
- Repayment strategy
- Potential refinancing opportunities
- Changing financial circumstances
- Questions that should be resolved before additional family security is contemplated
It is particularly useful when a parent or family member says: “I would like to help, but I first need to understand my own mortgage position”. That is a sensible place to begin.
Why deal directly with Mortgage House?
Mortgage House is an Australian credit licensee and has been helping Australians with home lending since 1986. Being a diversified lender allows us to consider customers across a broad range of home loan circumstances rather than treating every borrower as identical.
Deal directly with lending specialists
Customers can speak directly with Mortgage House lending specialists who operate close to our lending, product and customer-care functions. That helps create a clearer pathway from:
Enquiry → Assessment → Application → Settlement → Ongoing Customer Care
Explore more than one pathway
Depending on eligibility and current product policy, potential pathways can include:
- First home buyer lending
- Low-deposit lending
- Guarantor and Family Pledge structures
- Mortgage House Risk Fee products
- Refinancing
- Self-employed lending
- Construction
- Investment lending
- Specialist lending situations
- Other Mortgage House home loan structures
Support does not end at settlement
A mortgage can last for decades. Customer circumstances will change. Mortgage House’s Customer Care and Home Loan Health Check capability provide a pathway for customers to continue reviewing their lending after settlement.
Long-established Australian lending capability
Mortgage House was established in 1986 and operates under Australian Credit Licence 393283. We aim to combine:
Experience + Technology + Lending Expertise + Customer Care
What do Mortgage House customers say?
Before choosing a lender, customers should be able to research independent feedback rather than rely solely on lender marketing.
Mortgage House therefore encourages customers to review external customer feedback, including our profile on ProductReview.com.au, alongside product information, fees, features and their own circumstances.
Customer experiences can differ. Independent reviews should form one part of a broader lending decision.
Award-winning lending experience
Mortgage House has received industry recognition across home lending categories over many years. Awards can provide useful independent recognition, but they should not replace a customer’s own assessment of:
- Suitability
- Interest rate
- Comparison rate
- Fees
- Product features
- Service
- Credit eligibility
- Overall financial objectives
Independent guidance for anyone considering becoming a guarantor
Mortgage House encourages prospective guarantors to inform themselves before committing. Moneysmart, operated by ASIC, provides independent information explaining the potential consequences of going guarantor. Its central message is worth repeating:
“Treat it like you’re taking out the loan for yourself”
Potential guarantors should take the time required to understand the documents and consider independent legal, financial or other professional advice where appropriate.
Frequently Asked Questions
Can my parents act as guarantors for my home loan?
Parents are commonly considered in family-guarantee arrangements, but acceptance is subject to Mortgage House’s current lending requirements and the circumstances of everyone involved.
Speak with Mortgage House before assuming a particular person or property will be acceptable.
Does having a guarantor guarantee home loan approval?
No. The borrower must still satisfy applicable credit requirements. The loan, borrower, property, guarantor and security structure all need to be assessed.
Do I still need a deposit with a guarantor?
The amount required depends on the product, purchase costs, valuation, proposed guarantee and applicable lending policy. Do not rely on generic percentages. Let Mortgage House assess the actual transaction.
Does a guarantor become a co-owner of my property?
Providing a guarantee does not, by itself, make someone an owner of the property being purchased.
Property ownership and guarantor obligations are separate legal concepts.
Seek legal advice if you need guidance about ownership consequences in your circumstances.
Does a guarantor make my repayments?
Not ordinarily while the borrower is meeting their obligations. A guarantee exists to support specified obligations if the borrower does not meet them. The precise position depends on the contractual documentation.
Can the guarantee be limited?
Some structures may provide for an agreed limit. Whether a limited guarantee is available and appropriate will depend on the proposed lending structure and Mortgage House requirements.
The guarantor should understand the precise amount and terms contained in the formal documents.
Can a guarantor lose their home?
There can be serious consequences if a secured guarantee is enforced. Where the guarantor has provided property as security, that property may ultimately be at risk if the relevant debt cannot otherwise be satisfied. This is one reason independent legal advice is important.
When can my guarantor be released?
Potential release may depend on factors such as:
- Loan balance
- Property value
- LVR
- Repayment history
- Remaining security
- Borrower circumstances
- Mortgage House’s requirements at the time
Release is subject to approval and should never be assumed.
Is a guarantor better than LMI?
Neither is universally “better”. The answer depends on:
- The borrower
- The guarantor
- Deposit
- Property
- LVR
- Costs
- Risks
- Available products
- personal preferences
Mortgage House can help you compare the available pathways.
What if my family does not want to provide a guarantee?
That is completely reasonable. Alternatives may include:
- Saving a larger deposit
- LMI
- An eligible Mortgage House Risk Fee pathway
- Government assistance
- Purchasing a lower-priced property
- Changing the timing of your purchase
- Investigating another lending structure
A family member should not feel pressured into becoming a guarantor.
Take the next step with greater certainty
Buying a home with family support can be enormously valuable. It can also create responsibilities extending well beyond the borrower. That deserves a lending process built around understanding—not pressure.
Mortgage House will do its best to explore the reasonable pathways available to you and explain the relevant choices as clearly as possible.
Important Information
This information is general in nature and does not take into account your individual objectives, financial situation or needs. Lending is subject to Mortgage House’s applicable credit criteria, responsible lending requirements, product availability, acceptable security, valuation and other conditions. Terms, conditions, fees and charges may apply.
A guarantee may create significant legal and financial obligations. Prospective guarantors should read the relevant documentation carefully and consider obtaining independent legal, financial, tax or other professional advice appropriate to their circumstances before entering into a guarantee.
Australian Credit Licence 393283.