Your parents don’t need to give you money. They don’t need to go on your mortgage. They just need to agree to let a specific portion of their existing equity do a job for two or three years — and then they get it back.
That’s the essence of a partial guarantor arrangement. It’s one of the more useful tools available to first-home buyers who have some savings but not quite enough to reach the 20% threshold.
How it actually works
You’ve saved, say, 10% of the purchase price. A partial guarantor — typically a parent — guarantees a further 10% from their home equity, bringing your effective deposit to 20%. The lender secures that guaranteed amount against the guarantor’s property.
You avoid LMI entirely. The guarantor hasn’t handed over cash — their equity is simply being used as security for a defined amount, for a defined period.
A $600,000 property. You’ve saved $60,000. Parents guarantee $60,000 from their equity. Your effective deposit becomes 20%. No LMI. No cash transferred.
What ‘partial’ means in practice
A full guarantee — where a family member guarantees the entire loan — exposes them to considerable risk. A partial guarantee caps their liability at the specific amount agreed. If things go wrong, they’re only on the hook for that portion, not the whole loan. It’s a meaningfully different commitment.
When does the guarantor get released?
Once you’ve built 20% equity in your property — typically within 2–5 years through repayments and property growth — you apply to have the guarantee removed. The lender releases their security over the guarantor’s property and they regain full access to their equity. Done.
What the guarantor needs in place
- At least 20% usable equity remaining in their property after the guarantee is applied
- Sufficient income to service the guaranteed amount if called upon
- To be immediate family — parents or siblings are standard; grandparents accepted by some lenders
- Independent legal and financial advice — required by lenders, not optional
A note on structure
This arrangement is powerful when set up correctly. The loan structure matters as much as the guarantee itself — a poorly structured deal can keep the guarantor tied in longer than necessary, or create complications when you want to refinance later.
We’ve structured a lot of these. The difference between a clean exit in 2 years and being stuck for 5 usually comes down to how the loan was set up on day one.
This is general information only. Both borrowers and guarantors should obtain independent legal and financial advice before entering into any guarantee arrangement. All loans are subject to lender approval.
Sources: ASIC MoneySmart, Guarantor Home Loans; Australian Banking Association, Guarantor FAQs; National Consumer Credit Protection Act 2009 (responsible lending obligations).
