Family pledge & family guarantee home loans

Rates and fees last updated on

Get a foot in the door with a guarantor home loan

family guarantee home loanWith house prices in Australian capital cities out of reach for many first home buyers, saving the deposit you need for a home loan could take several years. Of course, by that time house prices may well have increased even further beyond your reach, so how can you find a way to get into the property market?

An option employed by some Australians is a family pledge home loan. Also known as family guarantee home loans and guarantor home loans, these types of mortgages allow you to make up for the fact that you don’t have a sufficient deposit saved by using the equity in a family member’s house as security on your loan.

There are plenty of advantages and a few potential drawbacks to family guarantee home loans, so read on to find out whether they’re right for you.

What is a family guarantee?

A family guarantee is a type of guarantee that can be made to secure a property. This is done by securing the deposit shortfall to a property owned by the guarantor, such as your parents or a close family member. It is also known as a guarantor home loan.

Home loans with a family guarantee feature

Rates last updated September 23rd, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.84%
3.84%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
4.04%
5.05%
$600
$8 monthly ($96 p.a.)
95%
Fix in a competitive rate for three years. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.03%
5.04%
$600
$10 monthly ($120 p.a.)
95%
Get a 2-year fixed rate with flexible repayment options to help you save.
3.98%
5.13%
$600
$8 monthly ($96 p.a.)
95%
A fixed rate home loan with additional repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.75%
5.05%
$0
$299 p.a.
95%
A fully featured home loan with an offset account and discounts available.
3.79%
5.26%
$600
$0 p.a.
95%
Short term fixed rate home loan with no ongoing fees with an interest only repayment option.
4.19%
4.83%
$0
$395 p.a.
95%
You can save on a host of Westpac products by packaging your 5-year fixed rate home loan.
5.55%
5.71%
$990
$10 monthly ($120 p.a.)
95%
Enjoy a competitive interest rate, make fee free extra repayments and a redraw facility.
4.45%
4.85%
$0
$395 p.a.
95%
Pay no application fee with 100% offset account with redraw facility and borrow up to 95% LVR.
4.62%
4.67%
$500
$0 p.a.
95%
Ideal for first home owners or anyone who wants a no-frills, basic variable rate home loan.
3.80%
3.81%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
5.24%
5.38%
$600
$8 monthly ($96 p.a.)
95%
The Westpac Rocket Repay Home Loan lets borrowers to own their home sooner with a 100% offset to save on interest.
4.70%
5.09%
$0
$395 p.a.
95%
A package home loan with discounted interest rate.

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How does a family guarantee work?

A family pledge allows you to use the equity in your parents’ property or another family member’s property as security on a home loan. Guarantors are limited to immediate family members, including parents, grandparents and siblings.

While it was once standard practice to guarantee the entire loan and put your home on the line, today the security on the new home loan can be split and you can limit your guarantee. For example, the equity in your parents’ property may be used as security for 20% of the loan, while the property you are purchasing will be used as security for the other 80% of the loan. So if you’re helping your kids purchase a property for $500,000, your 20% guarantee is only $100,000.

  • How much do they have to guarantee? A common strategy is to guarantee enough equity so that the borrower avoids paying Lenders Mortgage Insurance (LMI). A parent will need to guarantee 20% of the purchase price of the new property if the borrower has no deposit.
  • What can be bought with a family guarantee? The family guarantee can be used to buy a home or invest in residential property so buyers will be able to use normal home loans and investment home loans.

About Home Loan Guarantors

What are the benefits?

The family guarantee will allow you to:

  • Access finance. Most loans will have a minimum deposit that will have to be paid upfront in order to be accepted. This will usually be around 20%, or less if you pay LMI. With a family guarantee you may be able to borrow more money and provide less of a deposit which will allow you to buy a home sooner.

  • Avoid LMI. Borrowing more than 80% LVR usually requires you to take out lender’s mortgage insurance, but a family guarantee means this extra expense can be avoided.

  • Increase borrowing power. A family guarantee can boost your borrowing power. The family guarantee will often be used to cover a deposit that can't be paid so you will be able to borrow close to 100% of the loan in some cases if properly secured. Often, guarantor borrowers can borrow 100% of a property value plus costs.

  • Eligible for FHOG. Taking out a family pledge home loan means you are still eligible for financial assistance through the First Home Owners Grant. In addition, it also means you will be eligible to access most mortgage products from a lender.
  • Limit your guarantee. While the traditional approach is to guarantee the full loan, in many cases you have the option of guaranteeing just a portion of the loan, for example 20%. Once the standard LVR requirements of the loan product have been met due to loan repayments being made or a rise in the valuation of the home, the guarantee on the loan is released.

What are the drawbacks?

  • Putting the family home at risk. If you’re the guarantor you could be putting your family home at risk, so consider all your options before choosing this approach.
  • Not receiving expert advice. If you’re considering applying for a family guarantee home loan, it’s important that you seek out independent financial and legal advice first. You need to understand exactly what the guarantor will be liable for in the event that you default on the loan.
  • Not all banks offer family guarantees. Family pledge home loans aren’t offered by all lenders, so the best thing to do is approach a mortgage broker for advice tailored to your needs.

The Big Four family guarantee loans

There are several family guarantees you can choose from. Below we will look at the Big Four banks and their family guarantee loans.

ANZ Family Guarantee

The ANZ Bank Family Guarantee allows some family members to use the equity in their home as a security for a part of your total home loan. Family members include parents, parents-in-law, stepparents and grandparents and siblings will be considered. With this you’ll be able to buy a property sooner and avoid paying the premium for lenders mortgage insurance, according to the ANZ website.

More info about ANZ home loans

NAB Family Guarantee

The NAB Family Guarantee permits a family member like a parent to use the equity in their existing home as a security on the new home loan of the borrower. There are some features you might want to be aware of. First of all this guarantee may be used to secure a range of NAB branded home loans, so you can still choose the loan best suited for you. Second, this guarantee has to be secured by either a first registered residential mortgage or NAB Term Deposit.

More info about NAB home loans

Commonwealth Family Equity

The Commonwealth Bank Family Equity loan provides five financing options. These options range from family member acting as a guarantor and therefore giving some kind of security towards a loan, to giving assistance with mortgage repayments. The Family Equity is suitable for borrowers who are unable to service the loan.

More info about CBA home loans

Westpac Rocket Investment Loan

Westpac allow you to guarantee a loan with the help your family. They also have family guarantee options within some of the investment loans. The Westpac Rocket Investment Loan, for instance, offers a family guarantee feature.This feature allows Westpac customers to borrow 95% of the purchase price and associated costs where their parents guarantee the loan through the provision of another security property.

More info about Westpac home loans

Family pledge loans

If your credit is not perfect or you simply don't have a lot of credit history, you may be able to opt for a family pledge loan. These types of loans require that someone else 'guarantee' the loan. This can be a parent or parents, a brother or sister or anyone in your family who would be comfortable offering you some help.

This support can come by way of using their own income to help to supplement the borrower's or they can use their own property as a security for the loan.

Reasons some borrowers choose a family pledge loan

  • Starting a new job – If you've just graduated and recently acquired a job in your field you may not have the salary and subsequently the buying power necessary to purchase a home. This is where a family pledge loan might be able to help. These loans will help you to buy a house while waiting for your income to increase. When your income is higher then you can pay off your loan a little faster.

  • Reducing or eliminating mortgage insurance – If you are able to purchase a home, but the chosen loan would require mortgage insurance then a family pledge loan could help. If a family member can assist you then you will have more purchasing power and you will not need to pay LMI. This insurance only benefits the lender so if you can avoid it it will be much better for you and you'll save money.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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24 Responses

  1. Default Gravatar
    IvyNovember 30, 2016

    Hi I have been a guarantor for some years now when does it stop and we get clear and our deeds are return to us regards

    • Staff
      AnndyNovember 30, 2016Staff

      Hi Ivy,

      Thanks for your question.

      Generally, a guarantee will be released once the standard LVR requirements of the loan product have been met due to loan repayments or an increase in the valuation of the home. You can get more details on this by directly contacting the bank or lender.

      Cheers,
      Anndy

  2. Default Gravatar
    TanyaAugust 23, 2016

    Hi,
    I am wanting to purchase a property of $180,000 with a guarantor I am just wondering what criteria is necessary such as do I need to have been in my jo for a certain time etc.

    • Staff
      MayAugust 24, 2016Staff

      Hi Tanya,

      Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage experts and don’t offer any of the products or services on our website.

      Generally, if you apply for a home loan, the lender would look at and assess your income, job stability, assets, debts and credit rating. If you’re looking for a home loan with a guarantor, you can compare a range of loans in the market on this page.

      I’d also recommend that you seek an advice from a mortgage broker who will take all your circumstances into account and offer you a range of lending options.

      I hope this has helped.

      Regards,
      May

  3. Default Gravatar
    ANTHONYMarch 23, 2015

    My wife and I are 66 and would like to help our son buy a home, we have the money but if we use all our savings we will leave nothing for our on going future, can we help him without putting money out as he’ll inherit all our estate THANKS

    • Staff
      MarcMarch 24, 2015Staff

      Hi Anthony,
      thanks for the question.

      Depending on your situation and the lender your son opts to go with, a guarantor option might be available. This will see some of your property go towards your son’s deposit. I recommend contacting one of the lenders on this page directly or speaking to a mortgage broker about this.

      I hope this helps,
      Marc.

  4. Default Gravatar
    amandaFebruary 18, 2015

    will they do family guarntors loans if the person wanting the actual loan has bad credit

    • Staff
      ShirleyFebruary 19, 2015Staff

      Hi Amanda,

      Thanks for your question.

      These type of applications are handled on a case by case basis. There are few factors to consider, such as the lender’s policy, the severity of your bad credit and the financial position of your guarantor.

      If you would like to discuss your eligibility or options, please get in touch with a lender featured on this page.

      Cheers,
      Shirley

  5. Default Gravatar
    nicoleFebruary 17, 2015

    hello,
    If my husband and myself along with my brother and his wife want to invest in a property together, how can we set this up without my brother geing a guarantor??

    • Staff
      ShirleyFebruary 18, 2015Staff

      Hi Nicole,

      Thanks for your question.

      Assuming that you mean that you would not like your brother to be on the mortgage, you can still set up the property title so it includes your brother. This means he has no debt obligations but a portion of the property still belongs to him.

      You’ll need to approach your trusted solicitor to organise this so the contract is set up in the correct and legal manner.

      Cheers,
      Shirley

  6. Default Gravatar
    SarahAugust 1, 2014

    I am interested to know which banks are offering Low Doc loans that accept family guarantees.

    • Staff
      ShirleyAugust 4, 2014Staff

      Hi Sarah,

      Thanks for your question.

      Please see this page for low-doc home loans.

      St.George, Aussie and BoM provider guarantor home loans if the applicant is eligible.

      Cheers,
      Shirley

  7. Default Gravatar
    MariaJuly 22, 2014

    We are considering a family pledge for our son. Is it true that once his property has increased to the value of our pledge, we are released from the contract.

    • Staff
      ShirleyJuly 23, 2014Staff

      Hi Maria,

      Thanks for your question.

      It depends on the structure of the loan and how you set it up.

      If one of the goals is to pay off and release the guarantor as soon as possible, please communicate this to your lender or mortgage broker and they can organise this for you.

      Cheers,
      Shirley

  8. Default Gravatar
    PeterJuly 21, 2014

    How could I find out what additional costing will be involved for my parents, whom are considering assisting?
    A friend has been advised that the costs are very high.
    Even though St George’s brochure has stated a law, which mentions that the guarantor will the very last person sought, in the event that we default, what is that risk?
    Peter & Kathy

    • Staff
      ShirleyJuly 21, 2014Staff

      Hi Peter and Kathy,

      Thanks for your question.

      To find out the additional costs, please speak to your lender. Each lender will have different fee structure when adding a guarantor to the loan.

      If, in the even that your default, the guarantors could be held liable for the debt that is outstanding and their credit history would be affected too. For more information about the risks, please see this page.

      Cheers,
      Shirley

  9. Default Gravatar
    PerceJuly 1, 2014

    Re NAB Family Guarantee Home Loans
    Is a bank officer able to witness the guarantors’ signatures?
    Is it compulsory to obtain a solicitor’s signature?

    Many thanks

    • Staff
      ShirleyJuly 2, 2014Staff

      Hi Perce,

      Thanks for your question.

      This normally depends on the lender but in most cases the bank officer would need to witness the guarantor’s signature.

      While a solicitor’s signature is not always required, it’s highly recommended that you seek independent legal advice, in case anything happens in the future.

      Cheers,
      Shirley

  10. Default Gravatar
    sharonMay 23, 2014

    Hi I would like to get a home loan my family are my guarantee
    but my credit history is a worry its not a lot and iv tried to sort it is there any chance that i could get a lone

    • Staff
      ElizabethMay 26, 2014Staff

      Hi Sharon,

      Thanks for your question.

      Having a family guarantee might be able to improve your eligibility for a home loan if you have bad credit. You might want to take a look at our page on home loan options for people with bad credit, to see ways to go about getting a loan and the different non-conforming lenders that might be able to help you.

      I hope this has helped.

      Thanks,

      Elizabeth

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