Family guarantee, explained properly
Guarantor home loans in Melbourne
A guarantor home loan lets a parent or close family member use the equity in their own home as extra security for yours, so you can buy sooner, borrow without lenders mortgage insurance, and often with a much smaller deposit. It is one of the most useful tools a first home buyer has, and one of the most misunderstood. Here is how it works, in plain terms, for both of you.
For the parents as much as the buyer
What a guarantor is actually agreeing to
Your parents do not hand over money and they do not make your repayments. What they do is offer part of the equity in their home as security for a portion of your loan. With most major lenders this is a limited guarantee: it is capped at a fixed dollar amount, usually just the slice needed to bring your borrowing down to 80 percent of the property value. Their exposure is that amount, not your whole loan.
Because the lender sees the loan as 80 percent secured, there is no lenders mortgage insurance to pay. On a Melbourne purchase that can be a saving well into five figures, and you keep the interest you would have paid on it too.
The guarantee is not forever. Once your loan balance falls below 80 percent of the property value, through repayments, extra payments or the property rising in value, you apply to have the guarantee released and the lender removes its interest in your parents' home. For most families that is a few years, not decades.
- We explain the guarantee to your parents directly, in plain English, before anyone signs anything
- Limited guarantee structured so the guarantor's exposure is the smallest amount that gets the job done
- A release plan from day one, so everyone knows what has to happen to take the guarantee off
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Twenty years inside Australian banking, including senior roles at ANZ, before starting Exceed Finance. Plain answers, no pressure.
The numbers that matter
At a glance
General information only. Lender policies change and your full situation has to be assessed before any lender will confirm what they will do. Our service is free to you on residential home loans and everything is disclosed in writing.
Where we can usually help most
The guarantor situations that come up again and again
Good income, small deposit
You can comfortably afford repayments but saving a 20 percent deposit in Melbourne would take years. The guarantee covers the gap and you buy now.
Parents still have a mortgage
That is fine with most lenders, as long as there is enough equity. Some lenders want the guarantor's own loan with them; others do not care.
Retired parents
Harder, but not impossible. Lenders look closely at whether a retired guarantor could cope if things went wrong, and usually want them to get independent legal advice.
Buying with a partner
Both borrowers are assessed, one set of parents can guarantee, and the guarantee can be structured around the portion each of you is putting in.
Where our clients are
Across Melbourne, and Australia-wide
We are based in Dandenong South and a lot of our clients are across Melbourne's south-east, but everything can be done by phone, video and secure upload, so we help clients anywhere in Australia.
Other situations we write about:
Simple from start to finish
How it works
Free chat
We work out your goals and what you can actually borrow.
We compare
We search 35+ lenders and shortlist the ones whose policy fits your situation.
We apply
We package and submit your application, and chase it for you.
Settlement
We see it through to approval, and stay in touch afterwards.
Common questions
Questions we get asked a lot
Does my guarantor need to give me money?
No. A guarantor provides security, not cash. Their property is used as additional security for a limited portion of your loan. They are only called on if you cannot make your repayments and the sale of your property does not cover the guaranteed portion, which is why the limited structure matters.
How much can my parents be liable for?
With a limited guarantee, a fixed amount agreed at the start, typically the amount needed to bring your loan down to 80 percent of the property value plus, with some lenders, purchase costs. It is written into the guarantee document. Unlimited guarantees over the whole loan exist but are rare now, and we do not recommend them.
When does the guarantee get released?
When your loan is at or below 80 percent of your property's value. That can happen through regular repayments, lump sums, or the property going up in value, and for many buyers it is somewhere around three to seven years in. You ask the lender for a valuation, they confirm the ratio, and the guarantee comes off. We track this for you and prompt you when it is worth checking.
Can my parents be the guarantor if they are retired or still have their own mortgage?
Both are possible. A guarantor with a mortgage needs enough equity left over after their own loan. A retired guarantor is looked at more carefully, and most lenders will require them to see an independent solicitor before signing, which is sensible anyway. Not every lender is comfortable with every scenario, which is where comparing across the panel earns its keep.
Can I combine a guarantor with the government 5% Deposit Scheme?
Generally you would use one or the other. The 5% Deposit Scheme has the government guarantee up to 15 percent of the value so you avoid LMI without a family guarantor; a family guarantee does the same job using your parents' equity, with no price caps. Which suits you depends on the property, your deposit and what your parents are comfortable with. We run both side by side.
Do you charge for this?
Our service is free to you on residential home loans. Everything is disclosed in writing before you commit to anything, and as a licensed credit representative we operate under Best Interests Duty, which legally requires us to act in your interests rather than our own.
Will talking to you affect my credit score?
No. A conversation with us, and the work we do comparing lenders, involves no credit check. A credit enquiry only happens when an actual application is lodged with a lender, and we do not lodge anything until you have chosen to go ahead. The point of doing the work first is so that the application that does go in is the right one.
Bring your parents to the conversation
We will walk through what a guarantee means for them and for you, with numbers, before anyone commits. Free, and no obligation either way.