How does your property work as security for a home loan?

Your property provides your lender with collateral for your home loan

Property security is a way for people to secure a loan. It's what the lender uses as protection in the event you can't repay the debt.

If you can't repay your debt or fall into severe financial difficulties, they can take possession of the asset you secured the loan with and sell it to recover their costs.

  • Security: Security is an item or sum of money that is used to protect the loan. The security will have to be something that, if sold, will be able to cover the cost of the loan and any money that they spend selling the item. The security can be a number of things, but will generally be in the form of property or money.
  • Property security: Property security is simply security in the form of property. The property security may be the property which the loan is used to buy, or it may be another property - it's not unheard of for a parent to use the family home to secure against a child's loan - but obviously, any agreement with a third party security must be consensual and agreed upon in writing.

The value of the security is assessed by a professional valuer. This is called a bank valuation. A bank valuation will determine the approximate price of the property and will be used to work out the loan size and subsequently, the loan to value ratio. This also gives the lender an indicative price on how much they can get for the asset if they have to sell it.

Related: Calculate your own LVR

What is a guarantor and how do they provide security?

Guarantors are generally parents or close family members who agree to assume responsibility for a home loan should the borrower be unable to repay it. Borrowers use guarantors to enable them to buy a home with little or no deposit. A guarantor often uses their own home as security for the borrower's home loan.

What types of property cannot be used as security?

The easier a property is to sell and the higher the demand for that particular type of property, the better the chances of a lender accepting it as loan security. Below you will find a few property types that lenders tend to shy away from when it comes to low doc loans.

What happens if you don't make your repayments?

According to the Australian Securities and Investment Commission (ASIC), this is what happens when a mortgage default is enforced:

A lender can sell the primary security on a loan to cover their costs if a borrower's payments fall into default and if the payment default is not corrected after the lender gives notice.

Lenders will be required to submit a letter of demand or requirement notice if payments fall into default, although it is stated that this is not mandatory. If the borrower fails to make a payment as set out in the letter of demand, the borrower must then send a default notice. This notice explains how to rectify the situation and gives the borrower 30 days to do so.

Once the lender has served the appropriate notices and provided that the borrower has not requested a hardship service, the lender has the power to obtain a court order allowing them to enter the property. From here it can be sold to recoup their costs. A borrower has the option of defending against this action. They must file a Notice of Appearance within 10 days and a Notice of Defence within 30 days after that. If this does not happen, the court will order that the lender has the power to take possession of the property, but not the goods inside.

The property can be sold at auction or by private sale.

The most important things to know about home loan defaults

What happens if the lender goes bankrupt?

If the lender goes bankrupt you'll not be liable to pay any money. However, if the lender goes bankrupt your loan and the security property may be switched to another lender. This will rarely negatively impact consumers in terms of the interest rates they pay on their loans.

When you've obtained your loan, ensure that your repayments are made on time. Remember that if you experience financial difficulties and cannot meet your loan obligations, contact your lender first to agree on a solution.

Information if you are struggling to pay your loan

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Rates last updated May 24th, 2019
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.59%
4.54%
$300
$10 monthly ($120 p.a.)
90%
Home buyers can lock in a very competitive fixed interest rate for 2 years.
3.59%
3.55%
$0
$0 p.a.
80%
Low variable rate mortgage for owner occupiers looking to switch. Refinancers only.
3.48%
3.63%
$600
$10 monthly ($120 p.a.)
80%
A competitive variable rate for home buyers with a 20% deposit. This product has a 100% offset account.
3.74%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Get a competitive variable rate and a 100% offset account.
3.68%
4.11%
$0
$395 p.a.
80%
A low variable rate loan with a 100% offset account and package discounts.
3.49%
4.25%
$0
$375 p.a.
90%
Get a very competitive 3 year fixed rate with low fees and only a 10% deposit.
3.59%
3.66%
$0
$0 p.a.
70%
Get a low interest rate and a mortgage with flexible, basic features. No application or ongoing fees. Requires a 30% deposit.
3.44%
3.59%
$600
$10 monthly ($120 p.a.)
70%
A very low variable interest rate for home buyers with a 30% deposit. This product has a 100% offset account.
3.77%
3.81%
$0
$0 p.a.
95%
A simplified mortgage with a low interest rate and a redraw facility. Approval fee waived for a limited time.
3.69%
3.69%
$0
$0 p.a.
70%
A simple mortgage with no application or ongoing fees that has extra repayments plus split and redraw options. Requires a 30% deposit.
3.59%
3.62%
$500
$0 p.a.
95%
This mortgage combines a very sharp interest rate with a 100% offset account and it's available with a 5% deposit.
3.79%
3.83%
$0
$10 monthly ($120 p.a.)
90%
This is a flexible variable loan with low fees and a 100% offset account. Available with a 10% deposit.
3.99%
4.38%
$0
$395 p.a.
95%
A package loan that offers discounts and a 100% offset account.
3.79%
3.79%
$0
$0 p.a.
95%
Competitive, flexible rate mortgage with simple features and low fees. Low deposit option available.
3.72%
3.82%
$0
$8 p.a.
90%
First home buyers can get a competitive variable rate, avoid big fees and use a 100% offset account. Available with a 10% deposit.
3.74%
3.81%
$0
$10 monthly ($120 p.a.)
95%
Lock in a competitive rate for three years while you pay off your home. 100% offset account attached.
3.64%
4.63%
$300
$10 monthly ($120 p.a.)
90%
Low fixed rate loan for home buyers. Available with a 10% deposit. 100% offset account attached.
3.69%
3.69%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only. Eligible borrowers can get a 15% discount on home and contents insurance for the life of their loan.
3.69%
3.86%
$0
$0 p.a.
95%
This high LVR fixed rate loan allows you to borrow up to 95% of the value of the property you're buying. Approval fee waived for a limited time.
3.99%
3.95%
$0
$0 p.a.
80%
A competitive variable mortgage for investors looking to refinance. Principal and interest repayments. Refinancers only.
3.77%
3.82%
$600
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.49%
4.67%
$0
$395 p.a.
90%
Loans over $150000 get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.97%
4.28%
$0
$299 p.a.
80%
A competitive package rate for loans above $150,000. Optional 100% offset account.
4.09%
3.74%
$0
$0 p.a.
80%
Variable interest only mortgage for owner occupied refinancers. Refinancers only.
3.69%
4.21%
$0
$10 monthly ($120 p.a.)
90%
Get a low discounted rate for 2 years plus a 100% offset account. And you can get the loan with a 10% deposit.
3.75%
3.91%
$0
$10 monthly ($120 p.a.)
90%
Buy your home and lock in a low rate for the first two years. Available with a 10% deposit.
3.69%
4.48%
$300
$10 monthly ($120 p.a.)
90%
This fixed rate loan includes a special offer for new lending of $150000 with an LVR of 90% or less. Offer extended.
3.79%
3.79%
$0
$0 p.a.
80%
Low fee loan with extra repayments. Pay no application and ongoing fees and take advantage of split and redraw options.
3.73%
3.87%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.89%
5.24%
$300
$10 monthly ($120 p.a.)
80%
A flexible, competitive fixed rate loan that allows for extra repayments.
3.69%
3.83%
$0
$10 monthly ($120 p.a.)
80%
Earn Velocity Frequent Flyer Points on your mortgage (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.69%
4.09%
$0
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account. $500 cashback offer for first homebuyers borrowing over 80% and paying LMI.
3.99%
4.15%
$300
$10 monthly ($120 p.a.)
80%
Take advantage of a basic no-frills home loan with extra repayments and fee free redraw.
3.69%
3.90%
$0
$10 monthly ($120 p.a.)
90%
Get Velocity Frequent Flyer Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
3.69%
3.70%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Plus $1,500 cashback offer for eligible refinancers.
3.85%
4.18%
$500
$0 p.a.
95%
Apply for Easy Street fixed rate home loans and get a competitive loan with a fixed interest rate.
3.74%
4.13%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.69%
3.94%
$0
$248 p.a.
70%
Borrowers with a 30% deposit can get this competitive rate. Cut down on interest costs with a 100% offset account.
4.19%
4.22%
$0
$0 p.a.
90%
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.59%
3.97%
$395
$0 p.a.
80%
A competitive fixed interest rate product with no ongoing bank fees.
3.99%
3.99%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio. Take advantage of split and redraw facilities.
3.99%
4.44%
$395
$0 p.a.
80%
Pay no ongoing fees on this investment loan fixed for 3 years.

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26 Responses

  1. Default Gravatar
    DominicOctober 31, 2018

    Can a guarantor use an overseas property as security for the loan? For example, the guarantor has property and lives in NZ and I am to purchase a house in Australia. Is the guarantor able to use the property in NZ as security for purchasing a house in Australia?

    • Avatarfinder Customer Care
      JhezNovember 9, 2018Staff

      Hello Dominic,

      Thank you for your comment.

      Please be advised that the guarantor eligibility criteria may vary per lender, however, you may refer to the general requirements below:

      – A guarantor needs equity in their property and a stable income to satisfy lenders.
      – Your guarantor should have a good personal credit rating.
      – Lenders generally want a guarantor to be an Australian citizen or permanent resident.
      – A guarantor must be over 18 and typically under 65.

      You may refer to our page to know more about the home loan guarantor.

      Please note that a guarantor cannot use the overseas property as security to assist. The property security would have to be in Australia.

      Should you wish to have real-time answers to your questions, try our chat box on the lower right corner of our page.

      Regards,
      Jhezelyn

  2. Default Gravatar
    DavidOctober 5, 2017

    I have HOUSE A as security for HOUSE B (HOUSE A is totally debt free and I live in it and is in MY name, and HOUSE B is in both my son’s name AND mine as joint owners. My son makes ALL the repayments on HOUSE B). If I died then HOUSE A is to be sold and HOUSE B gets left to my son. Does ALL the money from the sale of HOUSE A have to pay off HOUSE B or can I pay some of it off to reduce his loan and leave the remaining funds to others in my estate? I hope you can follow this.

    • Default Gravatar
      DanielleOctober 5, 2017

      Hi David,

      Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.

      There are three main factors that determine what will happen if you have a mortgage when you die: your will, your mortgage agreement and your insurance policies. You may refer to this page to find out more.

      I hope this helps.

      Cheers,
      Danielle

  3. Default Gravatar
    SueJuly 15, 2017

    Can an unencumbered vacant block of rural land used for commercial purposes of farming be offered as security by the guarantor in a limited guarantor home loan?

    • Default Gravatar
      LiezlJuly 21, 2017

      Hi Sue,

      Thanks for your question.

      The type of real estate that can be used as security guarantee varies between lenders depending on the loan amount and the portion of the loan guaranteed by the guarantor. It’s a good idea to enquire from the lenders directly, better still approach a mortgage broker for advice tailored to your needs.

      Cheers,
      Liezl

  4. Default Gravatar
    chrisMay 25, 2017

    hi
    i have a house on crown land we rent the ground but the house is ours can i use the house to borrow for the land with out a deposit

    • Avatarfinder Customer Care
      LouMay 29, 2017Staff

      Hi Chris,

      Thanks for your question.

      Lenders have different criteria when it comes to properties that can be accepted as a security for a home loan. The general rule is the easier a property is to sell and the higher the demand for that particular type of property, the better the chances of a lender accepting it as loan security.

      You may compare your home loan options on this page. Once you have selected a particular lender, you may have to directly get in touch with them to discuss the eligibility of your property as a security.

      Cheers,
      Anndy

  5. Default Gravatar
    GinaApril 28, 2017

    Hi,
    My husband and I would like to purchase a property. We don’t have a deposit but would like to use my property as collateral, is this accepted or do we still require a deposit. Bearing in mind the property I will be using is in joint names with my sister in law. Do i need to ask for her permission also?

    Thanks

    • Avatarfinder Customer Care
      HaroldMay 8, 2017Staff

      Hi Gina,

      Thank you for your inquiry.

      Please note that most lenders would require 20% deposit if you’re taking a regular home loan. However, there may be options in the market that you can compare, please refer to the pages below:

      1. Cheapest Home Loans
      2. Low Deposit Home Loans – Although you may have to get a guarantor for this type of loan
      3. First Home Owners Grant – If it’s your first time to buy a home, then you may also check if you’re qualified for a grant in your local state.

      Alternatively, you can reach out to a mortgage broker who will take all your circumstances into account and offer you a range of lending options.

      I hope this information has helped.

      Cheers,
      Harold

  6. Default Gravatar
    KylieFebruary 14, 2017

    Hi,
    My husband and I are looking at getting his parents to go guarantors for us, the house they have might be Heritage listed. Will this make it ineligible to be used ?

    Thanks

    • Avatarfinder Customer Care
      LouFebruary 15, 2017Staff

      Hi Kylie,

      Thanks for your question.

      Lenders generally shy away from properties that are listed on a state or federal heritage protection list because these properties come with a wide range of restrictions and there aren’t as many people interested in purchasing such a property. However, this doesn’t mean all lenders are unwilling to approve a home loan if your security is a heritage property. You may have to directly get in touch with the lenders you are interested in to inquire.

      If you are interested, you can first compare your home loan options here. Once you have selected a lender, you can directly get in touch with them to inquire if they are willing to accept your security.

      Alternatively, you may also get in touch with a mortgage broker who is able to assist you in finding a suitable home loan option.

      Cheers,
      Anndy

    • Default Gravatar
      KylieFebruary 15, 2017

      Thanks for the reply.
      The house we will be using is the heritage listed property not the one we want to buy, so why would using a heritage listed property as equity be a problem? They are not looking at selling their property just use it to help us buy our own house ?
      If that makes sense ?

    • Avatarfinder Customer Care
      LouFebruary 17, 2017Staff

      Hi Kylie,

      Thanks for getting back.

      You mentioned that you are applying a home loan with your husband’s parents as guarantors and they have a home which might be heritage listed.

      In a home loan with a guarantor, the guarantor’s own home is often used as a security, so this would be the property of your husband’s parents. If you cannot repay your home loan, the bank can sell the property to recover their costs.

      In our page above, we have listed Heritage Homes as among the properties which cannot be used as security. Other lenders may consider this but you’ll have to directly get in touch with them to inquire. Alternatively, you can get in touch with a mortgage broker to assist you in finding a suitable home loan option.

      Cheers,
      Anndy

  7. Default Gravatar
    JillOctober 8, 2016

    I have been told by a Loans Broker that I can release the property being used as security, on a new property, after 20% of new mortgage has been repaid. Is this correct? Thank you

    • Avatarfinder Customer Care
      LouOctober 10, 2016Staff

      HI Jill,

      Thanks for your question.

      Please note that we are a financial comparison and information website and we do not provide expert advice on mortgages.

      A property used as a security for a home loan is generally released once the standard LVR requirements of the loan product have been met due to loan repayments. So if a property is used as a guarantee for say 20% of the loan and the equivalent amount has already been repaid, then the property may be released. Your mortgage broker or lender should be able to organise this for you.

      Cheers,
      Anndy

  8. Default Gravatar
    GeorgeMay 31, 2016

    I own a property which is used as security for a mortgage on a house my son has purchased about 2 years ago. I want to sell my property and buy elsewhere. Can I sell and transfer the security to the other property I intend to buy. My son’s house valuation may not qualify him for re-finance.

    • Avatarfinder Customer Care
      MarcJune 2, 2016Staff

      Hi George,
      thanks for the question.

      I would recommend contacting your son’s lender to find out what their policy will be regarding this. They’ll be able to advise whether or not this will be allowed.

      Sorry I couldn’t be of more help to you,
      Marc.

  9. Default Gravatar
    tommyFebruary 21, 2016

    i want to borrow 50k i will use my house thats worth 100k i own this house outright i dont owe nothing on it but i have bad credit what would be the chance of getting this loan with the loan i want to pay off all my bills and finish up on a few projects on and around the house

    • Avatarfinder Customer Care
      MarcFebruary 22, 2016Staff

      Hi Tommy,
      thanks for the question.

      Your chance for a loan such as this will depend on the lender you approach, in addition to the other usual factors: your debts, credit file, assets, liabilities and income. You might wish to consult a mortgage broker or read more about bad credit home loans before applying.

      I hope this helps,
      Marc.

  10. Default Gravatar
    leanneSeptember 1, 2015

    Hi
    Could you please advise if I want to put my home up as security to purchase a property for my daughter, could you confirm whether I have to seek finance through the same lender.

    • Default Gravatar
      JodieSeptember 1, 2015

      Hi Leanne,

      Thank you for your question regarding property security and home loans.

      We at finder.com.au offer generalised advice and cannot advise you on your specific circumstances for this type of advice we would recommend seeking the advice of legal and financial advisors.

      It would depend on whether you are wanting to use your property as security in order to go guarantor for your daughter to take out her own loan, in which case you would not have to seek finance through the same lender as it would be your daughter who is seeking finance.

      If you are simply using the equity in your home to obtain more finance in order to purchase a property for your daughter, where she is not the person seeking the loan, you will need to look at your refinancing options whether it be with the same lender or a new lender. If you still have funds owning on your property this will limit the amount a lender will offer you as a loan however if you own your property outright you have all the equity available to use.

      It would be recommended that you seek personal legal and financial advice and possibly speak to a mortgage broker before going forward with any decision that puts your property up as security as there are implications relating to your property that you would need to consider before making this decision.

      Regards
      Jodie

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