A family guarantee lets a buyer purchase with a small deposit and no mortgage insurance, by using equity in a parent’s property as additional security.
Written for the parents rather than the buyer. What you are liable for, why the capped amount defines your exposure, and the steps to having the guarantee released.
It is a good structure, used well. It is also the one where parents most often sign without a clear picture of what they have agreed to, because the conversation focuses on helping rather than on the obligation.
This guide is written for the parents. It covers what you are liable for, why the cap matters more than any other term, how the guarantee is released, and what to settle before anyone signs anything.
No money changes hands. You are offering a limited mortgage over your property as additional security for part of your child’s loan.
The lender takes two securities. The property being purchased, and a limited charge over yours for a defined amount. Because the combined security exceeds eighty per cent of the purchase price, no mortgage insurance is required.
| Cash gift | Family guarantee | |
|---|---|---|
| Money leaves your account | Yes | No |
| Your property is encumbered | No | Yes, to the capped amount |
| Mortgage insurance avoided | Only if the gift reaches 20 per cent | Yes |
| You can get it back | No, a gift is a gift | Yes, on release |
| Affects your own borrowing | Reduces your savings | Reduces your usable equity |
| Ends automatically | Not applicable | No, release must be applied for |
The last row matters. A guarantee does not fall away when the numbers improve. Somebody has to ask.
ASIC sets out the risks independently in its guidance on going guarantor on a loan, which is worth reading before you commit.
This is the section to read twice, because the common understanding is usually wrong in both directions.
You are not liable for the whole loan. In a properly structured limited guarantee your exposure is capped at a specified amount, not the full borrowing.
You are liable for that capped amount. If the loan defaults and the sale of the purchased property does not clear the debt, the lender can look to your property for the shortfall up to the cap. In the worst case that can mean selling your home.
Take the legal advice seriously rather than treating it as a formality. It is the one point in the process designed entirely around your interests.
The limited guarantee cap explained simply is this. It is the maximum amount the lender can recover from your property, and it is the single term that defines your exposure.
It is usually set at the shortfall between the buyer’s deposit and the twenty per cent needed to avoid insurance, plus an allowance for costs. The smaller it can be set, the better for you.
Lenders differ in how they calculate the cap and in how willing they are to set it tightly. That variation is a reason to compare lenders rather than accepting the first structure offered.
Plan the exit at the start. A guarantee with no agreed release trigger is the one that quietly lasts a decade.
The lender assesses your property and the equity available after any existing mortgage. If you still have a loan, the guarantee sits behind it.
The guarantee solves the deposit, not the income. If the buyer cannot service the loan on their own, the structure should not proceed.
Written, specific, and no larger than the shortfall plus reasonable costs.
Not just the rate. How the cap is calculated, what the release conditions are, and whether partial release is permitted all differ.
From a solicitor acting only for you. Ask them directly what happens if the buyer defaults, and what happens if you want to sell.
Not a legal document, a shared understanding. Commonly when the loan falls below eighty per cent of the purchased property’s value, through repayments, growth or both.
Knowing how to release a guarantor is straightforward in principle. The buyer requests a release, the lender revalues the purchased property, and if the loan now sits within eighty per cent on its own, the charge over your property is discharged.
Check that the charge has actually been removed from your title rather than assuming it happened. This is the step people skip.
Illustrative only, to show the arithmetic. Not a client file. Actual caps and release conditions vary by lender.
| Line | Amount |
|---|---|
| Purchase price | $800,000 |
| Buyer’s own deposit | $40,000, being 5 per cent |
| Deposit needed to avoid insurance | $160,000, being 20 per cent |
| Shortfall | $120,000 |
| Allowance for duty and costs | Added to the cap by most lenders |
| Indicative guarantee cap | Around $120,000 plus costs, not the full loan |
| Parents’ maximum exposure | The capped amount only |
| Release trigger | When the loan falls below $640,000 against the then value |
Note the difference between the loan, which is $760,000, and the parents’ exposure, which is around $120,000 plus costs. Parents frequently believe they have guaranteed the whole loan. In a properly capped structure they have not.
Release can come from three directions at once. Repayments reduce the loan, growth lifts the valuation, and any lump sum the buyer makes accelerates both. In a rising market the trigger is often met within a few years, but nobody applies for release automatically.
The conversation I most want parents to have is not about whether to help. It is about what the cap is and when it ends. Those two numbers are the whole arrangement.
Paritosh Wadhwani, Director and Principal Broker, APW Finance
Not in a properly structured limited guarantee. Your exposure is capped at a specified dollar amount, usually the shortfall between the buyer’s deposit and the twenty per cent needed to avoid insurance, plus costs. You are liable for that capped amount if the loan defaults and the sale of the purchased property does not clear the debt.
In the worst case yes, which is why the advice is taken seriously. If the buyer defaults and the sale of their property leaves a shortfall, the lender can enforce against your property for the capped amount. This is uncommon, but it is the actual risk you are accepting and it should be weighed on that basis rather than on how unlikely it feels.
Until it is formally released, which does not happen automatically. The usual trigger is the loan falling below eighty per cent of the purchased property’s value, through repayments, capital growth or both. The buyer then applies for release, the lender revalues the property, and if the test is met the charge over your property is discharged.
Yes. The capped amount reduces the usable equity in your property for as long as the guarantee is in place, which affects your ability to borrow for a renovation, another purchase or any other purpose. Selling your property while a guarantee is active also requires the lender’s involvement, since its security is affected.
Yes. Lenders require independent legal advice from a solicitor who does not act for the buyer or the lender, and you will sign a certificate confirming you received it. Treat it as a genuine review rather than a formality, and ask specifically what happens if the buyer defaults and what happens if you want to sell your property.
They solve the same problem differently. A gift means money permanently leaves your account. A guarantee means no money moves, your property carries a capped charge instead, and the arrangement can be unwound later. A guarantee usually suits parents who are asset rich but would rather not liquidate savings, and it can be released.
A family guarantee is a sound structure when the cap is tight, the buyer can service the loan alone, and everyone agrees in advance when it ends.
Get the cap in writing, take the legal advice properly, and diarise the release rather than waiting for someone to notice.
Read more about family guarantee lending or low deposit options. You can also read what LMI is or how capacity is assessed.
Talk to us before anyone signs.
Paritosh Wadhwani | Director and Principal Broker, APW Finance
Member of the Finance Brokers Association of Australia (FBAA). Arranging residential, commercial and specialist lending for Sydney clients across a panel of more than 50 lenders.
APW Finance Pty Ltd, 304/20a Lexington Drive, Bella Vista NSW 2153. Email: info@apwfinance.com. Phone: +61 447 959 546.
ACN 620 646 479 | ABN 79 620 646 479
This guide is general information only. It does not take into account your objectives, financial situation or needs, and it is not financial or credit advice. Lending criteria, interest rates, duty thresholds and government schemes change, and every application is subject to lender approval. Consider whether this information suits your circumstances and seek independent advice before acting. Figures quoted are current at the date below and should be confirmed before you rely on them. Last reviewed: October 2026.
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