Someone you love has asked you to go guarantor. You want to help. You also have questions you feel awkward asking, because asking them out loud sounds like you don’t trust them.
You’re not alone in that. It’s the most common thing we see on the guarantor side of a deal, and it’s the reason so many people sign documents they’ve never really read.
What a guarantor is, and why families do it
A guarantor is someone, usually a parent, sometimes a sibling or grandparent, who helps a buyer get a home loan by backing part of it with the equity in their own home. You are not buying the property with them, and you are not handing over cash. You are standing behind a slice of their loan so the lender will approve it.
Why this exists comes down to the deposit. For most first home buyers the hard part was never the monthly repayment, it is saving the deposit. To avoid Lenders Mortgage Insurance you normally need 20%, which on an $800,000 home is $160,000. Saving that while paying rent, while prices keep moving, can take the better part of a decade.
A guarantee closes that gap. It lets a buyer who can comfortably afford the repayments get in now, using a slice of family equity in place of the cash deposit they have not had time to save. In return they buy years sooner, they skip LMI, which can be $20,000 to $30,000 or more, and at some lenders they can borrow the full price plus costs.
That is the upside, and it is a real one. It is why going guarantor is one of the most powerful ways a family can help someone into a home. It is also one of the largest financial commitments you can make for someone else.
So here are the questions, asked for you.
First, check whether they actually need you
In October 2025 the federal 5% deposit scheme changed. Income caps were removed, the cap on the number of places was removed, and the property price limits went up.
A first home buyer with a 5% deposit may now be able to buy without Lenders Mortgage Insurance and without anyone pledging their home, the government guarantees part of the loan instead. Single parents and single legal guardians get an extra helping hand and can qualify with just 2% deposit.
The property also has to sit under the price cap for its location which is set out by state and capital city:
| State or territory | Capital city and regional centres | Other areas |
|---|---|---|
| New South Wales | $1,500,000 | $800,000 |
| Victoria | $950,000 | $650,000 |
| Queensland | $1,000,000 | $700,000 |
| Western Australia | $850,000 | $600,000 |
| South Australia | $900,000 | $500,000 |
| Tasmania | $700,000 | $550,000 |
| Australian Capital Territory | $1,000,000 | n/a |
| Northern Territory | $750,000 (Darwin) | $600,000 |
The capital city column also covers a handful of regional centres, including Newcastle, the Central Coast and Coffs Harbour in New South Wales, Geelong in Victoria, and the Gold Coast and Sunshine Coast in Queensland. Separate caps apply to Jervis Bay and Norfolk Island, and to Christmas Island and the Cocos Islands.
We’ve written a fuller breakdown of how the 5% deposit scheme works.
When a guarantee still earns its place
Plenty of buyers fall outside that scheme. A guarantee genuinely helps when the property sits above the price cap, when the buyer has owned a home in the past 10 years, when they have less than 5% saved, when they want stamp duty and costs covered too rather than just the deposit, or when the right loan for them sits with a lender that isn’t part of the scheme.
What a guarantee actually is
You are not lending money. No cash leaves your account.
You are offering part of the equity in your own property as extra security for someone else’s loan. The lender takes a mortgage over your home for a defined amount. If the loan goes bad and can’t be recovered, that security can be called on.
Two kinds of guarantee, and only one is common
A security guarantee solves a deposit problem. Your equity stands in for the deposit the buyer doesn’t have, which brings the loan under 80% of the property value and removes the need for LMI.
A servicing guarantee solves an income problem. Your income helps prove the repayments can be met, which exposes you to the loan itself rather than a slice of it. Most lenders stopped offering these, and for good reason. They are now rare.
If anyone offers you a guarantee that leans on your income, slow down and ask why.
For the rest of this article, we will be focusing on a security guarantee
The number that matters most
Here is the single most important distinction in this entire subject.
A limited guarantee caps your exposure at a specific dollar figure written into the documents. An unlimited guarantee does not.
With a limited guarantee, you’re covering the top-up slice that gets the buyer to an 80% loan, not the whole mortgage. The amount is usually calculated as the loan amount divided by 0.8, minus the property price.
An illustrative example. On an $800,000 purchase where the buyer borrows $840,000 to cover stamp duty and fees as well, the sum is $840,000 divided by 0.8, which is $1,050,000, minus $800,000. The guarantee comes to $250,000.
That’s a real quarter of a million dollars secured against your home. It is also dramatically better than guaranteeing $840,000.
Never agree to a guarantee without knowing the exact capped figure. If nobody has told you that number, you haven’t been told the most important thing about the arrangement.
What happens if the repayments stop
The lender goes to the borrower first. Hardship arrangements, repayment pauses, restructures. A decent lender works through those before it comes near you.
If the loan still can’t be recovered, the lender can call on your guarantee up to the capped amount. That amount is secured against your property. In the worst outcome, recovering it can mean selling your home.
This is the risk. Not a footnote to the risk, the risk itself. Anyone who describes a guarantee as a formality is either not paying attention or hoping you aren’t.
The reason to structure it carefully is that the risk is genuine. Go in assuming the guarantee could be called, and ask yourself whether you could absorb that. If the answer is no, that’s an answer, and it’s allowed to be.
What it does to you while the guarantee runs
Selling your home. Your property is security for someone else’s loan. Selling it while the guarantee is in place is not simply your decision anymore. It has to be dealt with first, usually by releasing the guarantee or replacing the security.
Your credit report. This one is widely misreported. Under comprehensive credit reporting, the guarantee itself is generally not listed on your credit report as a debt of yours. That said, lenders will ask about it and count it when you apply. And if the guarantee is called on and you don’t pay, a default can be recorded against you.
Your estate. Depending on how the guarantee is drafted, the obligation can survive you and bind your estate. If you’re older, or if your will and your guarantee were written by people who never spoke to each other, raise this with your lawyer.
Your pension. Going guarantor doesn’t move any money, so it doesn’t trigger the gifting rules on its own. If the guarantee is ever called on and you have to pay, that’s real money out of your assets, and the effect on an age pension can follow.
How the guarantee ends
Guarantees don’t end automatically. This surprises people.
A guarantee stays in place until someone applies to remove it. If nobody applies, it runs for the life of the loan, which might be thirty years.
Most lenders will release a guarantor once the loan drops below about 80% of the property’s value, through repayments, price growth, or both. They’ll usually want a clean repayment history, often around six months, and a fresh valuation. In practice this tends to take somewhere between two and five years, though nothing guarantees that timeline, and a flat market can stretch it.
Ask for the release trigger to be discussed before settlement, not after. A guarantee with no exit plan is just an open-ended one.
The protections that exist for you
Use them. They exist because guarantors have been hurt before.
Under the 2025 Banking Code of Practice, in force since 28 February 2025, a bank that subscribes to the Code must give you at least three days to consider the guarantee documents before you sign. It must also take reasonable steps to meet you without the borrower in the room.
That second one isn’t an insult to your family. It’s there so you can ask an uncomfortable question without watching someone’s face fall while you ask it.
One caveat that matters. The Code binds member banks of the Australian Banking Association that subscribe to it, so a good number of non-bank lenders sit outside it entirely. Ask your lender directly whether it subscribes. Either way, take the three days and ask for the private meeting.
Most lenders also require you to get independent legal advice before signing. Take it seriously. That lawyer’s only job is to protect you, and they’re the one person in the transaction with no interest in the deal proceeding.
Worth knowing: once you’ve had that legal advice, the bank is allowed to accept your guarantee before the three days are up. That’s your call to make, not a reason for anyone to hurry you.
If you feel pushed
Being pressured into a guarantee is a recognised warning sign, and ASIC’s MoneySmart names it plainly as a marker of financial abuse. It can happen inside loving families, without anyone intending harm.
You’re allowed to say no. You’re allowed to say not yet. You can speak to a free financial counsellor through the National Debt Helpline on 1800 007 007, and if the pressure is coming from family, 1800 ELDERHelp on 1800 353 374 exists for exactly that conversation.
A good broker gives you room to say no. That’s not us being modest. It’s the test you should apply to whoever is arranging this loan.
Ways to help that aren’t a guarantee
The question is usually put to you as yes or no. It rarely is.
You could gift a deposit outright, which is clean and final, and which most lenders accept with a short letter. You could lend money to the buyer, documented properly, with the terms written down. At some lenders you can put cash into a term deposit as security instead of pledging your home, which ring-fences a known sum, though those funds have to stay with that lender until the guarantee is released.
Or the buyer could wait six months, save a little more, and use the scheme. That’s help too.
The conversation to have before anyone signs
A 2026 survey by Money.com.au found that 64% of first home buyers who got help from the Bank of Mum and Dad had no formal written agreement. Nothing on paper, or a verbal understanding and a handshake.
The guarantee itself gets lawyered heavily. The family arrangement sitting behind it usually doesn’t exist on paper at all. Then someone separates, or someone dies, or the property sells for less than everyone assumed, and a family finds out it never agreed on what it thought it agreed on.
Write it down. What happens if the buyer’s relationship ends. What happens if you need to sell. Whether this is a gift, a loan, or a share of the property. When you expect to be released. It’s an awkward hour that buys you years of clarity.
The bottom line
Going guarantor is one of the most generous things a person can do, and one of the least understood.
Ask for the capped figure. Ask for the release plan. Take the three days. See your own lawyer. And before any of that, check whether the person asking could get there without you.
If you’d like someone to walk through the numbers with both of you in the room, that’s the conversation we have most weeks. We’ll tell you if a guarantee is the wrong tool for your family, and we’ll tell you before anyone signs anything.
You can read the plain-English version of what a guarantor takes on here, or look at guarantor home loans and low deposit options if you want to understand the borrower’s side first.
This article is general information only. It doesn’t take account of your circumstances, and it isn’t a substitute for the independent legal advice you should get before signing any guarantee. Government scheme rules and property price caps change, so check the current settings before you rely on them.