What Is a Guarantor Loan and Can a Broker Help Me Get One in Victoria?

By Lowest Interest Rates Australia

Introduction

When I was saving for my first home, I remember feeling like the finish line kept moving further away. Every time I scraped together a few thousand, property prices in Melbourne seemed to jump by double that! Then, over Sunday lunch, my parents mentioned something called a guarantor loan. I’ll admit — at first, it sounded intimidating. But after a chat with my mortgage broker, I realised it might be the smartest path for me to get into the market sooner.

If you’re a first-home buyer in Victoria (or even helping someone become one), a guarantor loan can be a game-changer. It allows a family member to use part of their home’s equity to help you secure a home loan — often with no need for Lenders Mortgage Insurance (LMI) and sometimes with a smaller or even no deposit at all.

In this article, I’ll break down what a guarantor loan really is, how it works in Victoria, who qualifies, and how a mortgage broker can help make the entire process smooth, safe, and financially smart.

Table of Contents

1. What Is a Guarantor Loan?
2. How a Guarantor Loan Works in Victoria
3. Types of Guarantor Loans
4. Benefits of Using a Guarantor Loan
5. Risks for the Guarantor
6. Who Can Be a Guarantor?
7. How a Broker Helps with Guarantor Loans
8. When and How to Remove a Guarantor
9. Case Study: A Victorian Family’s Success Story
10. Final Thoughts – Work with Lowest Interest Rates

What Is a Guarantor Loan?

A guarantor loan is a type of home loan where a close family member (often a parent) uses their own property as additional security for your mortgage. Instead of giving you cash, they “guarantee” a portion of your loan by pledging part of the equity in their home.

This additional security reduces the lender’s risk, which can allow you to:

• Buy a home with a smaller (or no) deposit
• Avoid paying Lenders Mortgage Insurance (LMI)
• Potentially borrow up to 105% of the purchase price (to cover costs like stamp duty and fees)

Essentially, your guarantor is helping you get your foot on the property ladder without needing to gift you money outright — and without selling any of their own property.

How a Guarantor Loan Works in Victoria

Here’s how it typically works:

1. You find a property you want to buy.
2. Your broker helps assess how much you can borrow and determines how much security the guarantor needs to provide.
3. The guarantor offers a limited portion of equity (usually 20% of the purchase price) from their own property as additional collateral.
4. The lender uses both the purchased property and the guarantor’s equity as combined security for the loan.

Once your property increases in value or you’ve paid down enough of the loan to reach 80% LVR (Loan-to-Value Ratio), your guarantor’s security can be released — freeing them from the commitment.

Example:

Let’s say you’re buying a home in Melbourne for $700,000. You have $35,000 saved (5% deposit). Normally, you’d need to pay LMI since your deposit is under 20%. But with your parents acting as guarantors, they can secure the 15% gap (around $105,000) using equity in their own home. This gives the lender full 20% security — and you avoid LMI altogether.

Types of Guarantor Loans

There are a few different types of guarantor loans available in Victoria, depending on your needs and the lender’s policies:

1. Security Guarantee (Most Common)

The guarantor offers part of their home’s equity as collateral. This is the most popular and safest structure since it only secures a limited portion of the loan (not the full amount).

2. Family Pledge Guarantee

Some lenders call their guarantor product a “Family Pledge.” It works the same way but may include additional features, such as repayment flexibility or gradual equity release options.

3. Income Guarantee

Less common, this type involves the guarantor supporting your loan by providing proof of income (rather than property equity). It’s typically used for parents helping children who have strong savings but low income.

Your broker will help you identify which structure best fits your circumstances — and ensure both you and your guarantor are fully protected.

Benefits of Using a Guarantor Loan

Guarantor loans can be a fantastic option for buyers who are ready to purchase but don’t quite meet the deposit or LVR requirements. Here are the biggest benefits:

• 🏡 Buy sooner: Skip years of saving and enter the market before prices climb further.
• 💸 Avoid LMI: Save thousands (sometimes tens of thousands) by avoiding this insurance.
• 💰 Borrow more: Cover purchase price plus related costs like stamp duty and legal fees.
• 👨‍👩‍👧 Keep family wealth in the family: Your guarantor doesn’t have to hand over cash — just use their home’s equity.
• 🚀 Build equity faster: As your property value increases, you can release the guarantor and own the security yourself.

In high-demand markets like Melbourne, being able to buy even a year or two sooner can make a significant financial difference — and a guarantor loan can be your fast track to that goal.

Risks for the Guarantor

Of course, no financial arrangement is without risk — and guarantor loans are no exception. The key is understanding them and planning accordingly.

• ⚠️ Liability: If the borrower defaults on the loan, the guarantor may be responsible for the portion they guaranteed.
• 🏠 Property risk: If the guarantor’s home is used as security, the lender could pursue that property if the borrower fails to make repayments.
• 📊 Credit impact: The guarantor’s ability to borrow for other purposes could be affected while the guarantee is active.

This is why most lenders and brokers strongly recommend (and often require) that guarantors get independent legal and financial advice before signing anything. A broker’s job is to ensure both sides clearly understand their obligations and to structure the loan so risk exposure is limited.

Who Can Be a Guarantor?

In Victoria, lenders generally restrict guarantors to immediate family members such as:

• Parents
• Grandparents
• Siblings (in some cases)
• Adult children (if helping parents downsize or relocate)

Each lender has its own rules. Some may allow extended relatives or step-parents, while others may not. A broker can clarify which lenders are flexible based on your situation.

Guarantor Requirements:

• They must own a property with sufficient equity.
• They must have stable income and good credit history.
• They should understand their financial obligations.

How a Broker Helps with Guarantor Loans

Navigating a guarantor loan on your own can be overwhelming — especially with all the paperwork, lender differences, and legal implications involved. That’s why having a broker in your corner makes the process far less stressful (and far more successful).

Here’s how a broker helps:

1. Matching You with the Right Lender

Not every lender offers guarantor loans — and those that do all have different policies. Your broker compares lenders to find one that suits your situation and your guarantor’s comfort level.

2. Structuring the Loan for Safety

A good broker ensures the guarantee is “limited” — meaning it only applies to a portion of the loan, not the entire amount. This protects your guarantor from unnecessary exposure.

3. Handling All the Paperwork

Brokers take care of complex documentation between you, your guarantor, and the lender — including legal disclosures, valuation requests, and security documents.

4. Helping Release the Guarantee Sooner

Your broker tracks your loan’s progress and property value. When your LVR drops below 80%, they can help arrange for your guarantor’s release quickly and safely.

5. Advising on Long-Term Strategy

A broker doesn’t just help you get into your home — they help you plan ahead, ensuring your loan can evolve with your life, goals, and financial comfort.

At Lowest Interest Rates, our brokers specialise in family-backed loans, ensuring every party — borrower and guarantor alike — understands their roles, benefits, and protections.

When and How to Remove a Guarantor

One of the biggest misconceptions about guarantor loans is that the guarantor stays tied to the loan forever. In reality, the arrangement can usually be released once the borrower builds sufficient equity.

When Can the Guarantor Be Released?

• When your property value has increased and/or you’ve paid down enough of your loan to reach 80% LVR
• If your financial situation has improved significantly (higher income, consistent repayments, etc.)

How the Release Works

1. Your broker arranges a property revaluation to confirm your LVR.
2. The lender reassesses your financial position and risk.
3. If you meet the criteria, they remove the guarantor’s security and issue updated loan documents.

This process can usually be completed in a few weeks — and your broker will handle most of it for you.

Case Study: A Victorian Family’s Success Story

Case Study – The Nguyen Family, Glen Waverley

Anna Nguyen had been renting for years but struggled to save a full deposit while paying Melbourne rents. Her parents owned their home outright, so her broker suggested a guarantor loan. Using $140,000 of their home equity as limited security, Anna secured a $700,000 home loan without paying LMI.

Within three years, her property increased in value by $120,000, and she paid down an additional $40,000 in principal. Her LVR dropped to 79%, allowing her broker at Lowest Interest Rates to arrange the release of her parents’ guarantee.

Today, Anna owns her home outright (with no attached security) — and her parents’ home remained unaffected throughout the process.

Final Thoughts – Work with Lowest Interest Rates

Guarantor loans are one of the most powerful tools available to home buyers in Victoria who are ready to buy but just need a little help getting over the deposit hurdle. They can fast-track your entry into the market, save you from costly LMI, and let you build equity sooner — all while keeping family support structured and safe.

However, they also come with important responsibilities for both parties, so having an experienced broker to guide you through every step is essential.

At Lowest Interest Rates, we specialise in helping families set up guarantor loans that make sense — with clear terms, minimal risk, and the best available rates across Victoria’s leading lenders.

🏠 Ready to explore a guarantor loan? Visit LowestInterestRates.com.au today to connect with a friendly broker who’ll help you buy your home sooner — the smart, safe, and stress-free way.