Guarantor Loans: Helping Family Into Their First Home

If a 20 % deposit seems impossible, a family member may be able to act as a guarantor. In a guarantor loan, the guarantor uses their home equity as security for part of your loan. NAB explains that the guarantor doesn’t hand over cash; they simply pledge a portion of their home’s equity to help you avoid LMI nab.com.au.

How it works

• You typically need at least a 5 % deposit of your own funds.

• The guarantor provides a limited guarantee (usually 20 % of the purchase price). If you default, the guarantor is liable for the guaranteed amount nab.com.au.

• Once you’ve built sufficient equity, you can refinance and release the guarantor nab.com.au.

  
  

Benefits

• Avoids LMI:  Because the guarantee covers the lender’s risk, you save thousands in premiums.

• Earlier entry into the market:  You don’t need to wait years to save a full 20 % deposit.

• Potential for better rates:  With a lower LVR, lenders may offer more competitive rates.

Risks for guarantors

• Legal liability:  If you cannot repay, the guarantor’s property is at risknab.com.au.

• Reduced borrowing capacity:  The guarantor’s ability to borrow for their own needs (e.g. an investment property or renovation) may be affected.

• Credit score impact:  If the borrower misses payments, the guarantor’s credit history could be impacted.

Before proceeding, all parties should seek independent legal and financial advice. A broker can explain alternative options, such as government schemes or gifting part of the deposit.