A family guarantee lets parents use equity in their home so their children can buy without a large deposit. How the amount is worked out, what it caps, and how long it takes to end.
Parents being asked to help their children buy, and buyers working out whether to ask. It covers how the guaranteed amount is worked out, what the guarantor commits to, and how the arrangement ends.
This describes the general structure. Lender policy differs on almost every mechanic below, so the figures here are worked examples used to explain the shape of it. The policy that applies is confirmed for each applicant.
A family guarantee lets a buyer purchase with little or no deposit by using equity in a family member's property as additional security.
The guarantor does not lend money. They do not make repayments. They agree that if the borrower defaults, and the sale of the borrower's property does not clear the debt, they will cover the shortfall up to a capped amount.
Two features define it. The guarantee is limited, covering a set amount rather than the whole loan. And it is temporary, built to be released once the loan reaches a safer position against the property value.
Parents are the most common guarantors. Depending on the lender it can extend to a legal guardian, an adult child, a sibling or a grandparent.
A borrower above 80% Loan to Value Ration (LVR) normally pays Lenders Mortgage Insurance (LMI). LMI is a one-off premium that protects the lender, not the borrower, and on a first purchase it runs to tens of thousands of dollars.
A family guarantee removes it. It can also improve the rate on offer, because some lenders charge more above 80% LVR than below it.
Most explanations describe the guarantee as 20% of the purchase price. It is calculated differently: whatever is required to bring total borrowings back to 80% of the property value.
Guarantee = total loan, less 80% of the property value
On an $800,000 purchase, 80% is $640,000. Everything borrowed above $640,000 is the guaranteed portion.
Every dollar the buyers contribute comes off the guarantee.
A 10% contribution halves the guarantee. It is the biggest lever the buyers control, and it belongs in the first conversation rather than the last.
Stamp duty, conveyancing, building and pest, and lender fees sit on top of the purchase price. That money comes from somewhere, and where it comes from changes the guarantee.
Paid from the buyers' own savings, or covered by a first home buyer duty concession, a grant, or a First Home Super Saver release, the loan stays at $800,000 and the guarantee is $160,000.
Borrowed as part of the loan at, say, $45,000, the loan becomes $845,000 and the guarantee becomes $205,000.
Work out the guarantee on your own numbers
The lender registers a mortgage over the guarantor's property, limited to the guaranteed amount. The property is not sold, transferred or drawn on. It sits as backup security.
Two things matter here, and they pull in opposite directions.
The cap is the principal, not the total. Guarantee documents usually extend to interest accruing on the guaranteed portion and the lender's reasonable enforcement expenses. Describe the guaranteed amount as the principal figure plus those costs, never as an absolute ceiling.
The lender goes to the borrower first. Lenders recover from the borrower's own property before touching the guarantor's security. One carve-out is common, where a lender expects a substantial amount would still be owing afterwards. Most guarantors assume the two properties sit in one pool. They do not.
While the guarantee is in place, most lenders treat it as a liability when the guarantor next applies for their own borrowing. That is the part people are least prepared for, and it surfaces years later.
The guarantee is called on when two things happen together. The borrower defaults, and the sale of their property does not clear the debt.
Using the $845,000 loan above:
The shortfall sits inside the $205,000 cap. Where a shortfall runs past the guaranteed amount, the excess stays the borrower's debt. It does not pass to the guarantor.
Not every parent can do this, and it is better to know early.
Lenders look at the equity in the guarantor's property, generally requiring the guaranteed amount plus any existing mortgage to sit within 80% of its value. The property does not need to be debt free.
Age and retirement is the most common reason a guarantee does not proceed. Lenders look closely at guarantors at or approaching retirement, and some will ask how the guarantee would be met if it were called on.
A family guarantee is security support only. The guarantor's income is not used and their capacity to repay is usually not assessed.
The guarantee comes off once the loan balance falls to 80% of the property value. That happens through repayments, extra repayments, or growth in the property value.
Three things get misunderstood.
Release is not automatic. It has to be applied for, and no lender watches for the moment a borrower qualifies.
A fresh valuation is required, usually at the borrowers' cost, and the borrowers have to show they can carry the whole loan on their own.
Release does not have to wait for 80%. It can be brought forward by paying LMI on the balance, or by refinancing to another lender.
On timing, most published figures are optimistic. We modelled an $800,000 purchase funded in full, over 30 years at 6%, with no extra repayments.
Growth does the heavy lifting. In the first year of a 30 year loan the balance falls by about $10,000, so pay down alone is slow. A flat market can hold a guarantee in place for a decade.
Anyone quoting a single figure is quoting an average without its assumptions. Ask what growth rate it assumes.
See when the guarantee would be released on your numbers
A guarantee is not the only route past LMI, and the alternatives deserve a look before a family home goes up as security.
The Australian Government's 5% Deposit Scheme lets eligible first home buyers borrow with a 5% deposit and no LMI, with the government providing the guarantee instead of a family member. Since 1 October 2025 there are no income caps and no limit on places. Property price caps apply and vary by location, and occupancy conditions apply.
Also worth checking: a First Home Super Saver release to lift the deposit, a first home buyer stamp duty concession to cut the cash needed at settlement, and LMI waivers available to some professions.
If the buyers can get there without a family guarantee, that is the better answer.
Guarantors have protections, and they read better as protections than as hurdles.
Guarantors also keep information rights for the life of the loan. They can ask at any time what the borrower owes. The lender must tell them within 14 days if it issues a default notice, if the borrower reports hardship that changes the loan, or if a default runs past two months. Few guarantors know this exists. Ask for a balance once a year rather than assuming no news is good news.
A guarantor can also end the obligation directly, by paying out the guaranteed amount, or by withdrawing before any money is advanced.
Five questions worth putting to your broker before anyone signs.
This guide is general information. It is not legal, tax or financial advice. Guarantee limits, thresholds and release conditions vary by lender and must be confirmed against the specific loan and guarantee documents, and with independent legal advice.
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