Guarantor Home Loans

How a Guarantor Loan Works

The borrower takes out a home loan to purchase a property. An immediate family member acts as guarantor, offering equity in their existing home as additional security for the lender. The lender then holds security over both properties during the guarantor period.

No money changes hands. The guarantor does not give the borrower a deposit or a loan. They agree to be responsible if the borrower cannot meet their repayments. Once the borrower builds enough equity in their own property, typically when their loan-to-value ratio falls below 80 per cent, the guarantee can be released and the guarantor's home is no longer at risk.

This structure is sometimes called a "bank of mum and dad" loan, though technically the guarantor is not lending anything. They are offering security, which is a different thing entirely.

Gift vs Loan vs Guarantor

These three options are often confused, and choosing the wrong one can create problems down the track.

A gift is a cash contribution to the deposit with no expectation of repayment. A family loan is cash handed over with a repayment arrangement. A guarantor structure involves no cash at all. Instead, the guarantor offers security through their home equity.

For family members who want to help but do not have cash to spare, or who simply prefer not to give it, a guarantor arrangement is often the right fit. Each option has different tax, legal and financial implications, and each lender treats them differently. We walk through all of them so you can make an informed decision.