A guarantee lets your parents help you buy without giving you a cent. Instead of cash, they pledge part of the equity in their own property as extra security. It can remove LMI entirely and get you in years earlier — and it puts their home on the line, which is why it deserves a proper conversation rather than a quick yes.
How it works
Say you are buying at $600,000 with a $30,000 deposit. That is 95% LVR: high LMI, tighter policy.
With a security guarantee, your parents pledge a limited portion of equity in their property — commonly enough to bring the combined security above the 80% line. The lender now holds two properties as security, your effective LVR drops below 80%, and LMI disappears.
Your parents do not hand over money. They do not make repayments. Their property simply carries a second mortgage for a limited amount.
Limited guarantee — insist on it
This is the single most important detail.
A guarantee should be limited to a specific dollar amount — typically just enough to get you under 80% — not to the whole loan. If your parents guarantee $120,000, that is their maximum exposure. If they guarantee the full $570,000, they are exposed to all of it.
Most lenders offer limited guarantees. Some default to more. Read the amount, and do not sign until it says what you agreed.
What your parents are actually risking
Say it plainly, because a guarantee arranged on vague reassurance is how families fall out:
- If you default, the lender can pursue the guaranteed amount from them, and ultimately from their property.
- The guarantee shows against their position and can limit their own borrowing while it exists.
- Selling or refinancing their home while the guarantee stands is more complicated.
Lenders require guarantors to obtain independent legal advice before signing, and usually independent financial advice too. That is a protection, not a formality — the point is that someone with no stake in the deal explains the risk to them.
Who can be a guarantor
Usually immediate family, most often parents. Some lenders accept siblings or grandparents; fewer accept anyone else. Guarantors generally need enough equity, and lenders look carefully at guarantors close to or in retirement, since the risk sits against an asset they may need.
Getting them released
A guarantee is not meant to be permanent, and this is the part to plan from day one.
Once your own LVR falls below 80% — through repayments, property growth, or both — you can apply to have the guarantee released. The lender revalues and, if the numbers work, discharges the second mortgage.
Typically two to five years. Put a reminder in the calendar rather than leaving it: plenty of guarantees sit in place years longer than they needed to, quietly restricting the guarantor, simply because nobody asked.
Worth considering, worth doing properly
For families able to help, a limited guarantee is often more efficient than gifting cash — the parents keep their money, and the child avoids LMI. The condition is that everyone understands the exposure and the exit before anything is signed.
What LMI would cost instead · Other ways in · Book a consultation
General information only — it does not take your objectives, financial situation or needs into account, and is not credit assistance or legal advice. Guarantors should obtain independent legal and financial advice. Guarantee structures, eligibility and release criteria vary between lenders. Easy Loan Finance is a Credit Representative (CRN 568863) of Beagle Finance Pty Ltd, Australian Credit Licence 383640.
