A guarantor agrees to repay a loan if the borrower cannot. On a home loan, that person is often a parent or other family member, and the security is often the guarantor's own home. ASIC's MoneySmart page on going guarantor, last updated 9 September 2026, is blunt: treat it as if you were taking out the loan yourself, and get advice before you sign.

A guarantee can sometimes help a buyer borrow with a smaller cash deposit, or without lenders mortgage insurance, because the lender has another person's assets to fall back on. That benefit for the buyer is a real risk for the guarantor. This explainer sets out that trade-off. It is not a recommendation to give or to accept a guarantee.

This is general information only. It is not personal advice, legal advice or a loan offer.

What does a guarantee actually cover?

MoneySmart says that if the borrower cannot make repayments, the guarantor may have to repay the whole loan plus interest, fees and charges. If the guarantor also cannot pay, the lender may repossess an asset used as security, such as the guarantor's home or car.

Sometimes you can guarantee only part of a loan, for example a set amount to cover part of the deposit. MoneySmart says that may limit what you owe, but you could still lose an asset you use as security. Ask the lender to confirm, in writing:

  • the exact amount guaranteed
  • when that amount may reduce, for example as the loan balance falls or as the borrower builds equity
  • when the guarantee can end
  • what property or other asset is used as security
  • whether the guarantee is for a home loan only, or could extend to other amounts later

A "limited guarantee" is only as limited as the contract. Do not rely on a conversation or a brochure.

Why buyers use a guarantor

Lenders may ask for a guarantor when they will not lend on the buyer's circumstances alone. Typical situations include a smaller deposit than the lender would usually accept, a thinner credit file, or an income pattern the lender finds harder to assess.

Used this way, a guarantee can reduce the cash the buyer has to save, and it can sometimes avoid LMI. Government schemes can be another path to a smaller deposit without asking a family member to put their home at risk. See the 5% Deposit Scheme, Help to Buy and how much deposit you need.

MoneySmart notes that if you do not feel comfortable going guarantor, you can help in other ways, for example by contributing money toward a house deposit. A gift or a contribution has its own tax, Centrelink and lending consequences, so that is not automatically safer, but it is a different kind of commitment.

Risks for the guarantor

MoneySmart lists these risks:

  • you may have to pay back the entire debt, including interest, and a secured asset can be sold
  • it could stop you getting a loan later, even if the borrower keeps up repayments, because you have to tell a future lender about loans you guarantee
  • a default can be recorded on your credit report, which can make it harder to borrow
  • it can damage the relationship if the borrower cannot repay

A guarantee can also have tax and legal consequences you may not expect. MoneySmart says to consider independent legal or financial advice so you understand the risks and how the guarantee could affect your situation.

If someone pressures you to go guarantor, MoneySmart says that may be a sign of financial abuse, and support is available. A financial counsellor is free and confidential, and you can also get free legal advice before you sign.

What to check in the contract

Ask the lender for the loan contract early, and keep asking questions until you understand it. MoneySmart's checklist includes the loan amount, the assets used as security, and the loan term. Be careful about guaranteeing a facility with no clear end date, such as an overdraft.

Add up what you might owe, including interest and fees, and test whether you could meet that repayment from your own income and savings without selling your home. Use the mortgage repayment calculator on the full loan, not only on the limited amount you hope to guarantee, unless the contract clearly caps your liability.

If you are asked to guarantee a business loan, MoneySmart says responsible lending obligations do not apply in the same way, and the risk can be higher because business income can change quickly. Its official example is Mary, who guaranteed a $250,000 business loan for her son Leo and used the family home as security. The business earned less than expected, and if Leo and Mary cannot cover the debt, the bank may sell the family home. A family home-loan guarantee is a different product, but the same security risk applies.

If things go wrong

MoneySmart says it can be hard to get out of a guarantee if the borrower cannot make repayments. You may be able to challenge a contract in limited situations, including where you agreed because of pressure, threats or fear, where you had a disability or mental illness when you signed, where you did not get legal advice and did not understand the documents or the risks, or where you think the lender or broker tricked or misled you. That is not a do-it-yourself process. Get legal advice.

If you are the borrower, missing repayments does not only put your home at risk. It can put the guarantor's home and credit file at risk too. Talk to the lender early, and consider the National Debt Helpline on 1800 007 007 if you cannot see a way through.

Frequently asked questions

Does a guarantor go on the title?

Not necessarily. A guarantor gives a promise and often a mortgage over their own property. They do not automatically become an owner of the home being purchased. Ownership, occupancy and any first-home concessions are separate questions. Get legal advice about the documents you are actually signing.

Can the guarantee be released later?

Sometimes, if the loan-to-value ratio has fallen enough for the lender to hold the loan on the borrower's security alone, or if the loan is refinanced. That is a lender decision, not an automatic right. Ask, in writing, what the release conditions are before you sign.

Is a guarantor loan better than paying LMI or using a government scheme?

There is no official ranking. LMI costs money and protects the lender, not you. A government guarantee or shared-equity scheme has its own rules and costs. A family guarantee transfers risk to someone else. Compare those paths against the loan you can actually get, and do not ask someone to guarantee a loan they could not afford to repay.

General information warning

This article is general information only. It is not personal financial product advice or legal advice, and it is not a recommendation to give, take or refuse a guarantee. It does not take into account your objectives, financial situation or needs. A guarantee can put a family home at risk. Anyone involved should consider independent legal and financial advice, and should read the contract, before they sign.

Sources

Last reviewed: November 2026.