Guarantor: The Two Types, the Real Dollar Amount, and What It Costs You Later

August 20, 2026 4 Min Read

Being a guarantor on someone’s home loan isn’t one single thing. There are two different guarantee types. The amount you’re on the hook for is usually smaller than people assume. It can also quietly affect your own borrowing power for years. Here’s all three in one place.

Quick Answer: Guarantor

A guarantor is someone, usually a family member, who uses their own property as extra security. This lets a borrower get a home loan with a smaller deposit. It also lets them skip lenders mortgage insurance. There are two types. A security guarantee pledges part of their equity. A servicing guarantee uses their income to help the borrower qualify instead. Most guarantees only cover the gap between the borrower’s deposit and 20%, not the whole loan. Taking on this role also shows up as a debt risk on your own credit file. That can affect your future borrowing.

The Two Types of Guarantee

A security guarantee pledges equity, not income. Their property backs part of the loan. This gives the lender extra security beyond the borrower’s own deposit.
A servicing guarantee works differently, using income instead. Here, their income helps the borrower pass the lender’s repayment test. No property equity is pledged.
Most home loans of this kind use the security type. This is the more common setup. It’s what most lenders mean by this term unless stated otherwise.
Knowing which type applies changes what’s actually at risk. A security type puts a property on the line. A servicing type is more about income than an asset.

The Real Dollar Amount You’re Guaranteeing

Most guarantees only cover the gap to a 20% deposit, not the full loan. If a borrower has a 5% deposit, this typically covers the remaining 15%, plus costs. It’s not the entire mortgage.
A worked example makes it concrete. On a $750,000 purchase, a 5% deposit is $37,500. The extra security might only need to cover roughly $112,500. That’s the gap to a 20% deposit.
This setup also avoids lenders mortgage insurance for the borrower. Skipping LMI on a purchase like this can save tens of thousands of dollars upfront.
Always confirm the exact amount in writing. Some deals cover the entire loan instead. Don’t assume it’s gap-only without checking your own agreement.

What This Role Does to Your Own Borrowing

The guaranteed amount counts as a debt risk on your credit file. Any lender assessing your own future loan has to factor this in.
This can shrink your own borrowing power while it’s active. If you’re planning to refinance, buy another property, or pull out equity soon, this setup needs careful timing.
The effect lifts once you’re formally released. That typically happens once the loan reaches 80% LVR, through repayments, refinancing, or rising property value.
This is worth talking through openly before agreeing. Anyone with their own plans for the next year or two should weigh this in first.

The Government Alternative: First Home Guarantee

The First Home Guarantee needs no family member at all. It lets eligible first home buyers buy with a 5% deposit and no LMI. The government backs it instead.
Price caps limit where it applies. The scheme caps eligible property prices by area. It won’t suit every purchase, especially in pricier city markets.
A family setup works at any price point. Where the scheme’s price cap rules a property out, this kind of setup can still apply, since it’s not capped.
Where you qualify, the government scheme is usually the safer pick. No family member takes on personal risk. The government carries it instead.

For related reading, see our guides to Offset Calculator: The Formula You Can Do Yourself, No Tool Needed.

FAQ: Guarantor

What is a guarantor on a home loan?
Someone, usually a family member, who uses their own property or income to help a borrower qualify for a home loan with a smaller deposit.

What’s the difference between a security guarantee and a servicing guarantee?
A security guarantee pledges someone’s property equity. A servicing guarantee uses their income instead, to help the borrower meet repayment requirements.

Do they guarantee the whole loan?
Usually not. Most arrangements only cover the gap between the borrower’s deposit and 20%. Some agreements cover the full loan instead, so always check the specific terms.

Does taking on this role affect my own ability to borrow?
Yes. It counts as a contingent liability on your credit file. This can reduce your own borrowing capacity until you’re released.

Is there an alternative that doesn’t need a family member?
The government’s First Home Guarantee scheme lets eligible buyers purchase with a 5% deposit and no LMI, subject to price caps.