We get this question a lot from Mackay families: a son or daughter has a steady job, perhaps an apprenticeship finishing up at a mine site or a new role in town, but the deposit hasn't caught up with prices. Here's how a family guarantee works in practice.
How a family guarantee works
Normally, a lender wants a 20% deposit to avoid lenders mortgage insurance (LMI). LMI protects the lender, not you, if a borrower can't repay. It's generally a one-off cost paid by the borrower when the loan is more than 80% of the property's value.
With a family guarantee, the guarantor's property is used as additional security. The lender takes a mortgage over part of the guarantor's equity, enough to bring your total security up to the level it's comfortable with. For example:
- You're buying a $560,000 home in Mackay and have $30,000 saved.
- The lender wants security covering at least 80% of your loan without LMI.
- Your parents agree to a limited guarantee of around $110,000, secured against their home.
The numbers above are illustrative only. The actual amount depends on the lender, the property, costs and how the loan is set up.
You are still the borrower. You make the repayments, and the lender still checks that you can afford the loan on your own income. The guarantee is there for security, not to make an unaffordable loan work.
The risks for the guarantor
ASIC's MoneySmart is clear about what going guarantor means. If the borrower can't repay, the guarantor can be responsible for the debt covered by the guarantee, and if their home is the security, the lender may be able to sell it. Other points MoneySmart makes:
- It can affect the guarantor's own borrowing. Lenders will want to know about the guarantee if the guarantor applies for credit, and it may limit what they can borrow.
- A default can show up on the guarantor's credit report.
- It's hard to get out of. A guarantor usually can't walk away from the guarantee simply because the borrower can't pay.
- It can strain family relationships if things go wrong.
MoneySmart's guidance is to guarantee a fixed, limited amount rather than the whole loan, to be careful with any guarantee that has no end date, and to get legal advice before signing. MoneySmart also notes that being pressured to become a guarantor can be a sign of financial abuse.
For parents approaching retirement, or who work in mining where income can change with rosters and contracts, it's worth thinking about whether you could cover the guarantee amount yourselves if you had to.
Limited guarantees and getting them released
Most family guarantees today are limited – the guarantor backs a set dollar amount, not the whole loan. That limit is written into the documents.
The guarantee doesn't have to last for the life of the loan. Common ways to have it released include:
- Paying the loan down so the borrower's own property covers the loan at an acceptable level.
- Growth in the property's value, confirmed by a new valuation.
- Refinancing once the loan-to-value ratio is low enough to stand on its own.
Some families set a target, such as reviewing the guarantee after three to five years. It's worth agreeing on that plan at the start.
Who can be a guarantor?
Each lender has its own rules, but guarantors are usually immediate family, most often parents. Some lenders also accept grandparents, siblings or a spouse or partner in certain circumstances. The guarantor generally needs enough equity in their own property, and lenders will want to understand the guarantor's situation too.
Lenders may also ask the guarantor to get their own legal advice and provide a certificate confirming they received it.
How the 5% Deposit Scheme compares
For many first home buyers, the Australian Government 5% Deposit Scheme now does a similar job without putting a parent's home on the line. Since 1 October 2025:
- First home buyers can buy with a 5% deposit and no LMI.
- There are no income caps and no waitlist.
- Single parents and legal guardians can buy with a 2% deposit.
- In Queensland the price cap is $700,000 outside Brisbane and the listed regional centres, which covers Mackay on Housing Australia's list.
You still need to meet the lender's own requirements and live in the home. The scheme only covers first home buyers, people who haven't owned a home or land in Australia in the past 10 years, and single parents or legal guardians, so a guarantee may still suit buyers above the price cap, people who don't fit the scheme, or those who want to borrow more than the scheme allows. Comparing the two, along with the $30,000 Queensland grant on new homes and transfer duty concessions, is a good conversation to have before your parents sign anything.
Talk it through first
If your family is thinking about a guarantee, book a call before anyone signs. We'll set out how a guarantee and the government schemes compare for the property you're looking at, and what the guarantor would actually be taking on. Or start with our 2-minute home loan check.
Book a call · Start the 2-minute home loan check
General information only – speak to a broker about your situation.
Common questions
Can my parents go guarantor if they still have a mortgage?
Often, yes, as long as there's enough equity in their property after their own loan. The lender will look at how much equity is available and the guarantor's circumstances.
Do I avoid lenders mortgage insurance with a guarantor?
Usually, yes. A key reason families use a guarantee is to bring the loan within the lender's limits without LMI.
Is the guarantor responsible for the whole loan?
Under a limited guarantee, they're responsible up to the guarantee limit. Under an unlimited guarantee, it could be the whole debt plus interest and charges. Check the documents carefully and get legal advice.
How long does a family guarantee last?
Until it's released. That can happen once the loan is paid down or the property has grown in value enough for the loan to stand on its own, confirmed by the lender.
Is the 5% Deposit Scheme better than a guarantor loan?
It depends on your situation. The scheme avoids putting a family home at risk, but has price caps and only covers certain buyers. A broker can lay both options side by side.
Sources
- Going guarantor on a loan (ASIC MoneySmart)
- Lenders mortgage insurance (ASIC MoneySmart)
- Australian Government 5% Deposit Scheme (First Home Buyers, Housing Australia)
- 5% Deposit Scheme property price caps (Housing Australia)
- 5% Deposit Scheme FAQs (First Home Buyers, Housing Australia)
- First home owner grant (Queensland Revenue Office)
- State Budget 2026 – $30,000 grant continued (Queensland Revenue Office)
This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: First home buyers.