Plenty of Sutherland Shire parents want to help their kids buy close to home, but few have a spare few hundred thousand dollars for a deposit. A guarantor home loan lets parents help using the equity in their own home instead of cash. It can get a first buyer into the market years sooner and avoid lenders mortgage insurance. However, it also puts the family home on the line, so everyone needs to understand how it works before signing.
How a Guarantor Home Loan Works
With a family guarantee, the buyer takes out the loan and makes the repayments as usual. The difference is that a parent (or another family member the lender accepts) offers part of the equity in their own property as extra security. The lender then holds a mortgage over both properties, which lowers its risk and lets the buyer borrow more of the purchase price.
Limited Guarantees
Most family guarantees are limited, meaning the guarantor backs only a set amount rather than the whole loan. Often that amount covers the gap between the buyer’s deposit and the level the lender is comfortable with, plus costs. As Moneysmart explains, you can agree to guarantee only part of a loan, but even a limited guarantee can still lead to a loss if the borrower defaults.
Avoiding Lenders Mortgage Insurance
Because the extra security keeps the lender’s risk within its normal limits, many lenders don’t charge LMI on a guarantor home loan. That can save a significant amount upfront. Our guide to how much deposit you really need shows how LMI changes with deposit size.
Who Can Be a Guarantor?
It varies by lender. Most accept parents, and some also accept other close family members such as grandparents or siblings. The guarantor usually needs enough equity in their own property, and some lenders also look at their age, income or existing debts. The guarantor can often still have a mortgage of their own, as long as there is enough equity to cover the guarantee.
The Risks for Parents
A guarantee is a serious legal commitment. If the borrower can’t keep up repayments and the property sells for less than the loan, the lender can ask the guarantor to pay up to the guaranteed amount. According to Moneysmart, the risks include:
- Losing the asset used as security, which may be your home.
- Damage to your credit report if a default occurs.
- Difficulty borrowing in future, because lenders need to know about any guarantee you hold.
- Strain on family relationships if things go wrong.
It’s also worth thinking about what happens if the buyer’s circumstances change, for example after a relationship breakdown, job loss or a decision to sell.
Independent Legal Advice
Many lenders require guarantors to get independent legal advice before signing, and it’s wise even when it isn’t required. A solicitor acting only for the guarantor can explain exactly what they’re agreeing to, how much is at risk and how the guarantee ends.
Questions to Ask Before Signing
- Exactly how much are we guaranteeing, and is it limited to that amount?
- Which of our properties will the lender hold as security?
- What happens if our child sells, refinances or can’t make repayments?
- How and when can we apply to release the guarantee?
- How will the guarantee affect our own plans, such as downsizing or borrowing for retirement?
Clear answers to these questions protect both generations. Moreover, putting the plan in writing, including who pays what if circumstances change, can prevent misunderstandings years down the track. A guarantor home loan works best when everyone goes in with their eyes open.
How to Remove the Guarantee Later
A family guarantee doesn’t have to last the life of the loan. Once the buyer’s loan falls to a level the lender accepts without the extra security, usually through repayments, value growth or both, the buyer can apply to release the guarantee. The lender may order a new valuation and reassess the buyer’s income. If the current lender won’t release it, refinancing may be an option, as our article on refinancing when your home has gone up in value explains. Planning the exit from day one helps everyone.
Alternatives to a Guarantor Home Loan
A Gifted Deposit
Some parents prefer to give money outright. Lenders usually want a signed letter confirming the gift is non-repayable, and some also want to see the buyer’s own genuine savings. A gift avoids tying up the parents’ home, but the money is gone for good.
Government Schemes
The First Home Guarantee, now promoted as the Australian Government 5% Deposit Scheme, lets eligible first home buyers purchase with a 5% deposit and no LMI, and eligible single parents with 2%. The Sydney price cap is $1,500,000. Separately, the Help to Buy scheme lets the government contribute up to 30% of the price of an existing home, or up to 40% of a new home, for eligible buyers with taxable incomes up to $103,000 (individuals) or $165,000 (joint applicants and single parents). Help to Buy is available only through participating lenders, and its NSW capital city price cap is $1,300,000. Our First Home Guarantee guide explains the details.
Why Shire Families Use Guarantor Loans
Published estimates put the Sutherland Shire median house price at roughly $1.9 million to $2.1 million in early 2026 (DiJones, HTAG and Picki figures differ). As a result, many first buyers start with a unit around Sutherland and Kirrawee or a house in the upper Shire, such as Engadine, Heathcote, Menai or Bangor. A guarantor home loan can help them buy sooner and stay close to family. Our first home loans page and Sutherland Shire hub cover the local options, and parents in Cronulla often ask us about this too.
Guarantor Home Loan FAQs
For Buyers
Some lenders allow it, with the guarantee covering the full deposit and sometimes costs. You still need to show you can afford the repayments.
It depends on the lender. Some ask for a savings history even with a guarantee, while others are more flexible. We’ll check which lenders suit your situation.
Scheme rules and lender policies vary, so this needs checking case by case. We’ll compare both paths and show you the cost of each.
For Parents
Up to the amount you guarantee, plus possible costs. If the borrower defaults and the sale doesn’t cover the loan, the lender can pursue you for the guaranteed amount.
It can. Lenders need to know about the guarantee, and some will treat it as a potential debt when you apply for credit.
Until the lender agrees to release it, usually once the buyer’s loan falls to a level the lender accepts without the extra security.
Talk It Through as a Family
We explain how a guarantee would work with different lenders, how long it might last and the alternatives, so parents and kids can decide together. We’re based in Bangor, NSW, and we also help families across Australia by phone and video.
Prefer to talk now? Call Shannon on 0402 283 480.
The information on this page is general in nature and does not take into account your objectives, financial situation or needs. Lending criteria, fees and charges apply. Eligibility criteria apply to government schemes. Consider whether it is appropriate for you and speak to us for advice specific to your situation.
Need Some Help?
Not sure where to start? That’s exactly what we’re here for. Drop us a message and we will get back to you within one business day with clear, honest advice tailored to your situation.
