Getting into Melbourne's property market is tough when prices rise faster than you can save a deposit. A guarantor loan lets a parent's equity do some of the heavy lifting — so you can buy sooner and often skip LMI entirely. But it's a serious commitment for the guarantor, and it needs to be done properly.
The "Bank of Mum and Dad" is now one of the biggest lenders in the country — and for many Bayside families, a guarantor loan is how the next generation gets a foothold. Done right, it's a powerful, structured way to help. Done casually, it puts a parent's home at risk. Here's how it actually works, and how we protect everyone involved.
What a guarantor actually provides
A common misconception: the guarantor isn't lending or gifting you money. Instead, a family member — almost always a parent — offers the equity in their own property as additional security for a portion of your loan. That extra security lifts your effective deposit above the level you could reach on your own.
The practical result: you can buy with a smaller deposit, and because your effective deposit is now above 20%, you often avoid Lenders Mortgage Insurance completely — which on a Melbourne purchase can save tens of thousands of dollars.
How it works, step by step
- Your parent offers a limited guarantee — secured against their property for a specific, capped amount, not your whole loan.
- That guarantee tops up your deposit, so the lender sees a lower-risk loan.
- You buy your home and make the repayments — the loan is yours.
- As you pay down the loan and your property grows in value, your own equity builds.
- Once your equity reaches around 20%, you release the guarantee (see below).
The risks for the guarantor — read this carefully
A guarantee is a real legal obligation, not a formality. The guarantor is liable for the guaranteed portion of the loan. If the borrower can't repay and the situation isn't otherwise resolved, the guarantor could be called on to cover that amount — and in a worst case, their own property could be at risk.
This is why two things are non-negotiable: the guarantee should be limited to a capped amount (not open-ended), and every guarantor must get their own independent legal and financial advice before signing. Lenders require it, and we insist on it — a parent should go in with eyes fully open.
Releasing the guarantee — the exit plan
A guarantee shouldn't last forever. Once your own equity reaches roughly 20% of your property's value — through repayments, renovations or market growth — you can typically refinance or restructure to remove the guarantee, releasing your guarantor's property entirely. We plan this exit from day one, so your parent knows there's a clear, realistic path to being released, not an indefinite obligation.
Why this suits many Bayside families
Established Bayside homeowners often hold substantial equity, while their adult children are trying to buy into Melbourne's competitive market. A guarantor loan lets that equity help the next generation buy — often in Bentleigh, Elwood, or a first apartment closer in — without the parents having to sell anything or hand over cash. It's a structured way to give a leg-up while keeping everyone protected.
Getting it right
A guarantor arrangement is one of the most powerful tools in home lending — and one of the easiest to get wrong. As your broker, we cap the guarantee to the smallest amount that does the job, choose a lender with sensible guarantor terms, map the release plan, and make sure your guarantor has independent advice before anyone signs. Under Best Interests Duty we're bound to act in your interests, and our service is free to you — the lender pays us on settlement.
Thinking a family guarantee might be your path in? Try our calculators or book a chat below. It also pairs well with our guides on avoiding LMI and home purchase finance.