Guarantor advice

Family guarantees: the benefits, the risks and why advice matters

A family guarantee can help your child buy a home sooner, but it puts your own property at risk. Learn how it works, your rights under the Banking Code and how to get released.

Updated October 2026 to reflect current law.

A family guarantee lets you use the equity in your home to help a family member get a loan, most often their first home loan. It can help them buy sooner. But it also puts your home on the line.

This guide explains how a family guarantee works, the benefits and risks, your legal protections, and why independent legal advice matters before you sign.

What is a family guarantee?

A family guarantee is a promise to the lender that you’ll pay part of a relative’s loan if they can’t. To back up that promise, you usually give the lender a mortgage over your own property. Lenders sometimes call this a family pledge or security guarantee.

Most lenders accept parents as family guarantors. Some accept other close relatives. Each lender sets its own rules, so check with the lender or broker. ASIC’s Moneysmart website has a useful overview of going guarantor on a loan.

How does a family guarantee work?

Lenders usually want the borrower’s loan to be no more than 80% of the property’s value. Above that, the borrower normally has to pay lenders mortgage insurance (LMI). A family guarantee covers the gap. Here’s a simplified example (ignoring costs like stamp duty):

In this example, the parent’s guarantee would be limited to $120,000 (plus, usually, interest and enforcement costs). The parent gives the lender a mortgage over their home to secure it. If the parent already has a mortgage, the new one usually ranks behind it.

Benefits of a family guarantee

1. Buy with a smaller deposit. Your child may be able to buy years sooner than if they had to save a full 20% deposit.
2. Avoid LMI. Because the lender has extra security, the borrower can often avoid lenders mortgage insurance, which can cost thousands of dollars.
3. No cash needed from you. You’re lending your equity, not handing over savings.
4. It can be temporary. Many family guarantees are released once the loan falls to around 80% of the property’s value.

If you’re helping a first home buyer in NSW, also check whether they qualify for government help. See our guide to NSW first home buyer grants and schemes.

Risks of a family guarantee

1. You may have to pay. If the borrower defaults, the lender can demand payment from you, up to your guarantee limit, plus interest and costs.
2. Your home is at risk. If you can’t pay, the lender could take steps to sell the property you offered as security.
3. Your own borrowing may be affected. Future lenders may count the guarantee as a possible debt of yours. That can matter if you want to refinance, renovate or help another child.
4. Retirement and estate plans. A guarantee can tie up your equity for years, and may need to be dealt with if you sell, downsize or pass away.
5. Family strain. Money problems can test relationships, especially if the borrower separates from a partner who is also on the loan.

Your legal protections as a family guarantor

Several sets of rules can protect you. Which ones apply depends on the lender and the type of loan.

The Banking Code of Practice

Most banks follow the Banking Code of Practice. The 2025 version started on 28 February 2025. Under it, the bank must:

• limit your guarantee to a set amount and/or the value of a specified property;
• give you key documents before you sign, such as the proposed loan contract and the borrower’s credit report;
• generally wait until the third day after giving you that information before accepting your guarantee (unless you confirm you’ve had independent legal advice);
• make sure the borrower isn’t present if the bank attends your signing;
• send you copies of any default notice or formal demand to the borrower within 14 days; and
• generally enforce the borrower’s own security before enforcing a mortgage over your home.

The National Credit Code

If the guaranteed loan is a home loan to an individual, it’s usually covered by the National Credit Code in the National Consumer Credit Protection Act 2009. The lender must give you a copy of the proposed loan contract and an information statement before you sign. You can also withdraw in writing before the loan is first drawn down.

The general law

Courts can sometimes set aside an unfair guarantee. The Garcia principle can protect a spouse who guarantees a partner’s debts without understanding them. The Amadio principle deals with lenders who take unfair advantage of someone at a special disadvantage. These are fact-specific, so don’t rely on them as a safety net.

How to get released from a family guarantee

A family guarantee doesn’t end on its own. Usually the borrower applies to the lender to release you once:

• the loan has been paid down, or the property has gone up in value, so the loan is around 80% of the value or less (the lender will often want a new valuation); or
• the borrower refinances to a loan that doesn’t need your guarantee.

Under the Banking Code, you can also end your liability by paying the lender the lower of the borrower’s debt or your guarantee limit, or by agreeing other arrangements with the lender. Before you sign, ask the lender to explain its release process in writing.

Why guarantors should get independent legal advice

Most lenders require it, and for good reason. A lawyer who acts only for you can:

• explain exactly how much you could have to pay and which property is at risk;
• check whether the guarantee is limited, or covers all monies the borrower owes now and in future;
• help you ask for changes, such as a lower limit or clear release conditions; and
• sign the legal advice certificate the lender needs, if you decide to go ahead.

It’s also worth talking to your accountant or financial adviser about how the guarantee fits with your own plans.

Family guarantee FAQs

Can I limit my family guarantee?

Yes. Family guarantees are usually limited to a set amount. Banks that follow the Banking Code must limit your guarantee to a set amount and/or the value of a specified property.

Will a family guarantee affect my ability to borrow?

It can. Lenders may treat the guarantee as a possible debt when you apply for a loan. Always tell a new lender about any guarantees you’ve given.

Can the borrower come to my legal advice appointment?

No. The advice is confidential and for you alone. The borrower shouldn’t be present, so you can ask questions and decide freely.

How long does a family guarantee last?

Until the loan is repaid or the lender agrees to release you. There’s no automatic end date, so plan the exit before you sign.

Been asked to give a family guarantee?

Talk to us before you sign. Our guarantor independent legal advice service explains your documents in plain English and, if you go ahead, provides the certificate your lender needs. We also advise guarantors in Oran Park and Gregory Hills.

Alternatively, you can give us a call, send us a message or book a call with us by clicking the buttons below.

This article is general information only and is not legal advice. It reflects Australian law at the date of publication. Please contact us for advice about your circumstances.