What is guarantor loan?
A guarantor loan uses a family member's property as additional security so the borrower can buy with little or no deposit and avoid LMI — typically the guarantor pledges 20% of the purchase price worth of their own equity.
A guarantor home loan (often called a 'family pledge' or 'family guarantee' loan) uses a family member's property as additional security. The borrower puts up the new property as primary security and the guarantor pledges a portion of equity in their own home — usually enough to cover the shortfall between the borrower's deposit and the standard 20% LVR threshold.
Structure example: a first home buyer with $20,000 deposit buys a $500,000 home. Without a guarantor they'd need LMI; with a guarantor pledging $80,000 of equity in their home, the lender's effective LVR drops below 80% and no LMI is charged. The guarantor's liability is capped at the pledged amount (not the whole loan).
Once the borrower pays the loan balance below 80% of the property's current value (via repayments + capital growth), the guarantee can usually be released. The guarantor's home is then no longer collateral.
family pledge loan · guarantor home loan · family guarantee
- Loan-to-value ratio (LVR) — LVR is the size of your home loan expressed as a percentage of the property's appraised value — a $400,000 loan on a $50…
- Lenders Mortgage Insurance (LMI) — LMI is a one-off premium that protects the lender (not the borrower) when the LVR is above 80%; typical cost on a $500,0…
- Home equity — Equity is the portion of the property you own outright — current property value minus the outstanding loan balance. A $7…
General information only — not personal financial advice. Verified against https://ratesniffers.com.au/glossary on 2026-06-01.