Guarantor loans are quite common these days but a lot of guarantors may not know what the actual responsibilities of a guarantor are.

Diving in to support someone else’s mortgage agreement can put a lot of risk and exposure on your assets. Understanding the roles and responsibilities of a guarantor can, however, help minimise these risks.

What is the role of the guarantor?

A guarantor is someone who provides a guarantee for your home loan by securing their own property.

The aim of this strategy is to get into the Australian property market early.

You can normally remove the guarantee once part of the loan has been paid or if the value of the property you’re buying increases.

How is a guarantor home loan structured?

A guarantor is the only loan type that allows you to borrow 100% of the property price even if you haven’t saved a deposit.

In a guarantor loan, the lenders use both the property you’re buying and the guarantor’s property as security for the loan.

The guarantor can also choose to limit the guarantee, which means they can only secure a part of the loan.

The banks assume that the value of the guarantee reduces your loan to under 80% of the property value. This is why the requirement to pay Lenders Mortgage Insurance (LMI) is waived by the lenders.

Our mortgage brokers specialise in guarantor loans. Call one of them on 1300 889 743 or fill in our free online assessment form and find out how you can be a guarantor yourself.

What risks are involved?

The guarantor is ultimately liable for the part of loan they have guaranteed.

If the person they have guaranteed fails to meet their loan obligations and defaults, the guarantor will be responsible for the amount they have guaranteed.

This can put them at a great risk depending on the amount of assets or exposure they have on the mortgage.

What will the guarantor be liable for?

The guarantors are usually parents who are helping their adult child buy a home or a close family member who knows the borrower.

On paper, the responsibilities of a guarantor are quite significant since they would ultimately be responsible for paying off your mortgage in the event that you default.

Can I limit the size of the guarantee?

The guarantor can choose to limit the size of the guarantee using a limited guarantee. This means that you’re only liable for up to an amount agreed upon by you and the lender.

For instance, if the size of the loan is $500,000 and your limited guarantee is for only $150,000 then you’re only liable to cover up to $150,000, which is the agreed amount.

Of course, if the property is sold for $500,000, you won’t have to worry about anything. However, if the property is sold for $300,000, you’ll only be liable for the limited guarantee of $150,000 and not for the remaining $50,000.

On the other hand, if it sells for $400,000 then you’ll only be liable for $100,000, not the entire amount that was guaranteed.

You can call us on 1300 889 743 or fill in our free online assessment form to speak with our mortgage brokers for more information on the responsibilities of a guarantor.

What if I can’t cover the guaranteed amount?

If you can’t cover the outstanding debt with your equity or don’t have enough savings to cover the amount then you might want to consider getting:

  • A second mortgage
  • A personal loan

Normally, banks will do everything they can to avoid selling the guarantor’s home. For example, they can lower your repayments until you’re able to make full payments.

If every option has been exhausted then they’ll have no choice but to sell your home. However, they will only take the amount required to cover the home loan up to your limited guarantee.

The remaining proceeds will go back to you.

It’s recommended that you don’t enter into a guarantor arrangement if you have concerns about the responsibility or financial situation of the borrower.

When can the guarantee be removed?

Generally, you can release the guarantee once you’ve paid off a significant part of the loan or if the property has increased in value.

The process to remove the guarantee is quite easy and may sometimes only require you to sign a form.

Removing the guarantee early can help the guarantor rest at ease.

Do I have to pay fees?

You may be liable for some minor administration and government fees, depending on the lender you apply with.

An LMI premium may be added if your home loan exceeds 80% of the property value. This is because the banks consider your mortgage to be riskier because you don’t have additional security.

What else happens after the responsibilities of a guarantor have ceased?

Speak with our brokers on 1300 889 743 or complete our free online assessment form for more information.

Responsibilities of a guarantor FAQs

What if the guarantors have another mortgage?

This shouldn’t be a problem considering that some of our lenders can still secure a guarantee on the guarantor’s property, provided that they have sufficient equity.

Lenders normally use a second mortgage to do this.

However, lenders will only consider this if the total debt secured on the guarantor’s property is less than 80% of the value of their property.

For instance, your guarantor has a mortgage with $150,000 owing and they need to give a limited guarantee of $100,000. The total debt secured on their property will be $250,000.

To be eligible for a guarantor loan, their property needs to be worth at least $312,500.

You can use our Guarantor Loan Calculator to help you work out how much equity you have in your property.

Get legal advice from a professional

Being a guarantor for someone else’s loan is an important responsibility.

It’s recommended that you seek advice from both a legal and financial professional such as financial adviser or your solicitor before you decide to proceed.

Our mortgage brokers are experts at handling guarantor loans. You can call us on 1300 889 743 or complete our free online assessment form to find out how we can help you.

  • Macadam

    Is it possible to remove the guarantor at 90% LVR?

  • Yes, you’ll need to internally refinance your mortgage. If your bank does not offer you a competitive rate then you can speak with us and we’ll let you know which other lenders can. Do note that different banks will value your home at different amounts but we can also order upfront valuations with more than one lender so you can choose the lender with the highest valuation. Please call us on 1300 889 743 if you want to discuss this with an expert mortgage broker.

  • Beegle

    Hi, can my parents sell their home even when I still haven’t removed them as my guarantor?

  • Hi Beegle,

    You should talk to an expert mortgage broker before they put their home on the market. It’s possible for a portion of the sales proceeds (to limited guarantee amount) to be transferred to a term deposit temporarily while they look for a new home. However, there are several options depending on the nature of your situation so please be sure to discuss with an expert on what is right for you.

  • Mikey

    Do you have any case studies on your clients that have successfully used a guarantor to secure a home loan? I would very much like to read some of them.

  • Hi Mikey. Yes, we do. You can find them under the case studies section on the guarantor home loans page:

  • Kliener

    Say I’m going guarantor for my child who’s getting a $800k loan. I’m guaranteeing him for $240k so what will happen if the property is to be sold?

  • Hi Kliener,
    If the size of the loan is $800,000 and your limited guarantee is for only $240,000 then you’re only liable to cover up to the agreed amount of $240,000. If the property is sold for full price, you won’t have to worry about anything. If it’s sold for $700,000 then you’ll only be liable for $100,000, not the entire amount that was guaranteed.

  • Willi

    I want a guarantor mortgage to buy an investment property and it’s been difficult to find a lender that can accept this. Are there any banks in Australia that can do a guarantor mortgage for investment purposes or is residential absolutely necessary?

  • Hi,
    Guarantor mortgages for investment purposes are available but only two or three lenders in Australia will accept this. We can assist you to buy one investment property. However, buying multiple investment properties is not normally accepted because the guarantor is taking an unnecessarily high risk whereas the borrower is making all of the potential profit. Multiple investment properties may be considered if the guarantor is in a strong financial position though. Please feel free to contact us if you’d like to discuss in detail with a guarantor mortgage specialist.

  • Michelle Cooper

    I am going guarantor for $400k bridging loan on a unit so they take my deeds to my house and on the unit i am going guarantor for, the unit is worth $800k, if they default in payment can I sell my house or will they sell it cheap just to get there $400k back

  • Hi Michelle,
    We haven’t heard of someone being a guarantor on a bridging loan before. I’d recommend that you check with your mortgage broker or lender to confirm how it works and if you aren’t sure then seek legal advice before entering into the contract.

  • Jenny neale

    I have a question we used my mums and my house as guarantor for a 3 beddroom apartment in surfers paradise as an investment. We have both properties are up for sale. I have been told that
    if our house sells before the apartment we have to pay70% back off the loan for the a partment. We borrowed 100% for the unit as interest only. $660 k 3 bed 2 bath with 380 degree views of gold coast so value has gone up at least 40k The unit pays for itself returning 47k per year rental with mantra chevron. The home is worth same amount and is at carrara dual living with extra air bnb set up at back. So does this sound correct about having to pa y
    back the 70% it would of course stop my mum grom buying a new home for herself.

  • Hi Jenny
    I believe it is like this:
    1. If you sell first then the loan would be paid off in full.
    2. If your mum sells first then the loan must be reduced to be max 80% of the value of your property
    Please note that this may vary depending on your lender. It’s best to check with them again as they may be a little confused.

  • Candice

    Hi, I have two questions.
    Is a guarantor home loan similar to a co-signed loan between two people whereby, it impacts their future lending as they’re both viewed by the bank as sharing the liability?
    If you’re able to demonstrate to the lender that the property will be positively geared, will they be more inclined to give you a loan? Just looking for some clarity, thanks in advance.

  • Hi Candice,

    Regarding the first question, on a guarantor home loan, the guarantor is simply providing their property as security as such It doesn’t affect their future lending massively. Lenders, however, will definitely want to see good conduct on the loan.

    As for your second question, demonstrating positive gearing will add strength to your loan application. However, it would not be the main deciding factor in the overall acceptance. Your borrowing power, deposit and credit history will be factored in more heavily.

  • Candice

    Oh! One more question, is this method common for unemployed individuals?

  • Hi Candice,

    You would still need to demonstrate a regular source of income i.e. investment loans, dividends, super income etc. A guarantor helps with the deposit requirement, it doesn’t assist with the borrowing power or affordability of the home loan.