Can My Parents Be a Guarantor If They Still Have a Mortgage?
Yes, in most cases they can, even with a mortgage still on their own home. What a lender cares about is how much equity your parents have, not whether they have finished paying off their place. Here is exactly how it works, what lenders check, and the risks worth understanding first.
Years of experience
Five-star Google reviews
Clients serviced
The short answer
Yes, in most cases your parents can act as a guarantor on your home loan even if they still have a mortgage on their own home. What a lender assesses is the usable equity in their property, not whether a mortgage remains. Equity is the difference between what their home is worth and what they still owe, and as long as there is enough to cover the guaranteed portion of your loan plus a buffer, an existing mortgage is not a disqualifier. It does come with genuine risks and conditions, including a legal requirement for your parents to get independent legal advice, so it is worth understanding the full picture first.
The short answer: yes, usually
This is one of the most common questions first home buyers ask, and the good news is that a parent still paying off their own home can generally still act as a guarantor. Having a mortgage does not automatically rule them out.
The worry is understandable. If your parents still owe money on their Glenmore Park or Emu Plains home, it seems logical that a bank would not accept their property as security. But lenders look at it differently. What matters is the equity available in the property, not whether the mortgage is fully paid off.
It is about equity, not the mortgage
Equity is simply the difference between what a property is worth and what is still owed on it. If your parents’ home is worth $900,000 and they still owe $280,000, their equity is $620,000.
A lender looks at that equity as potentially available to support your loan, rather than being put off by the remaining mortgage balance. As long as there is enough equity to cover the guarantee amount, which is usually the shortfall between your deposit and 20 percent of the purchase price, the arrangement can work. The existing mortgage does not block the guarantee; it just reduces the equity available to work with.
Equity, explained simply
Equity = property value − the amount still owed. A $900,000 home with a $280,000 mortgage has $620,000 of equity. The mortgage does not prevent a guarantee; it simply reduces the equity available. As long as enough remains to cover the guaranteed amount with a buffer, the guarantee is viable.
A worked equity example
To show how the numbers fit together, here is a worked example. These figures are purely illustrative, to explain the mechanics; they are not an assessment of any real situation, and only a lender can confirm what your parents actually qualify for.
Illustrative scenario
| Parents’ estimated property value | $900,000 |
| Parents’ remaining mortgage | $280,000 |
| Parents’ equity | $620,000 |
| Your purchase price | $750,000 |
| Your deposit saved (5%) | $37,500 |
| Guarantee needed (gap to 20%) | $112,500 |
In this illustration the parents’ $620,000 equity comfortably exceeds the $112,500 guarantee needed, so on these numbers a guarantee would likely be workable. In reality a lender also considers the formal property valuation, its own lending policy, the guarantors’ income, and other factors, so this is a starting point for a conversation, not a decision.
This example is a simplified illustration only and is not personal advice or an eligibility assessment. Your parents’ actual position depends on a lender’s valuation and assessment. Speak to a broker for a proper check.
How a guarantor loan works
A guarantor loan is not the same as your parents co-borrowing with you. They do not go on the loan. They offer their property as additional security for a portion of your debt. Here is the sequence:
- You apply for your home loan. Your income, expenses, credit history, and deposit are assessed normally, and the lender approves you as the primary borrower.
- Your parents provide a limited guarantee. Rather than guaranteeing the whole loan, most guarantees are limited: they cover only the shortfall between your deposit and the 20 percent threshold. If you have 5 percent and need 20, the guarantee covers roughly the 15 percent gap.
- The lender takes a second mortgage over your parents’ property. This is registered for the guaranteed amount, behind their existing first mortgage. This is why equity matters: both mortgages need to be covered by the property’s value.
- You make all the repayments. Your parents make none. They are only called on if you default, which is the risk they are accepting.
- The guarantee is released once equity builds. Once your property has grown in value or your loan balance has fallen enough to reach a safe loan-to-value ratio, you can apply to release the guarantee, freeing your parents’ property from the second mortgage.
What lenders check
When assessing your parents as guarantors, lenders look at more than just the equity figure.
| Factor | What the lender assesses | Why it matters |
|---|---|---|
| Available equity | Property value minus all mortgages, needing to cover the guarantee plus a buffer | The primary eligibility factor. |
| Property type | Most lenders accept houses and units; some restrict rural, commercial, or unusual properties | Some lenders will not accept non-standard security. |
| Guarantors’ income | Ability to keep servicing their own mortgage, not yours | Confirms they can manage their own obligations. |
| Credit history | Their credit file, including any defaults or past insolvency | Clean credit strengthens the application. |
| Age | Some lenders apply extra scrutiny for guarantors near or in retirement | Lenders want confidence in ongoing serviceability. |
| Independent legal advice | Guarantors must sign a certificate confirming they received it | Required, and protects all parties. |
On age specifically: some lenders are cautious where parents are near or past retirement, because they want confidence the parents can keep servicing their own mortgage if ever called on. It does not automatically rule them out, particularly where there is strong equity and an acceptable income source, but it is worth raising with a broker early, since lenders differ on how flexible they are.
The real risks for your parents
It is essential your parents understand exactly what they are agreeing to. Going guarantor is a significant commitment, and this is why every guarantor is legally required to obtain independent legal advice before signing.
The core risk is this: if you cannot make your repayments, and the lender cannot recover the debt from the sale of your property, it can enforce the guarantee against your parents’ property, up to the guaranteed amount. In the worst case, your parents could lose equity or, in extreme circumstances, their home. This is uncommon in practice, but it is the legal reality of a guarantee.
Most arrangements proceed without incident, for a few reasons:
- The guarantee is limited, covering only a specific amount rather than the whole loan.
- It is released once you have built enough equity, which is often within a few years.
- Lenders pursue guarantors only after exhausting other options.
- A carefully structured guarantee keeps your parents’ exposure to a minimum.
Before agreeing, your parents should get independent legal advice from a solicitor, which lenders require in any case; have an honest family conversation about the “what if” scenarios; understand the guarantee is time-limited; and consider it against their own financial plans, particularly if retirement is near. Because this touches tax and estate considerations for some families, those questions are best directed to an accountant or solicitor rather than a broker.
How the guarantee is released
The guarantee does not last forever. Once you have built enough equity in your own property, through repayments, value growth, or both, you can apply to have it removed, releasing your parents’ property from the second mortgage.
Most lenders will consider releasing the guarantee once your loan-to-value ratio falls to around 80 percent or below. How quickly you get there depends on your repayments and on the market, so the timeframe varies rather than being fixed. A broker can monitor your position and apply for release once the threshold is reached, which is worth doing promptly since it removes the security over your parents’ home.
Alternatives, including the government scheme
If your parents do not have enough equity, or simply are not comfortable going guarantor, there are other ways into the market on a small deposit.
- The Australian Government 5% Deposit Scheme. Formerly the First Home Guarantee, this lets eligible first home buyers purchase with a 5 percent deposit and no Lenders Mortgage Insurance, with the government guaranteeing the gap. From 1 October 2025 it was expanded: income caps were removed, place limits abolished, and the NSW price cap for Sydney and regional centres raised to $1,500,000 (other NSW areas $800,000). Confirm the current caps and eligibility with Housing Australia, as they change.
- A 5 percent deposit with LMI. Pay Lenders Mortgage Insurance instead of using a guarantee. More expensive, but requires no family involvement.
- A cash gift from parents. If your parents can contribute a gift rather than guarantee, it can lift your deposit above the threshold. A gift letter is generally required.
- Saving longer, with the First Home Super Saver scheme. A tax-effective way to build a deposit over time.
A government guarantee is not a family guarantor
These are often confused. Under the government’s 5% Deposit Scheme, the Commonwealth guarantees part of your loan, and your family has no involvement and no liability. A family guarantor loan uses your parents’ property equity as security, and your parents take on a real, if limited, liability. The two solve the same small-deposit problem in very different ways, and they generally cannot be combined.
Read Intellect Finance’s real Google reviews
Guarantor arrangements involve two financial situations at once, yours and your parents’, so getting the structure right matters. Here are Intellect Finance’s actual Google reviews, pulled live from our Google Business Profile, so you can see how clients describe the experience. They are real and unedited.
These reviews reflect other borrowers’ experiences. They are not a promise of any particular outcome for your loan, which will always depend on your own circumstances and lender assessment.
How Intellect Finance can help
A guarantor arrangement involves two financial situations at once, and getting the structure right matters. We assess both sides together: we run your parents’ equity numbers up front so no time is wasted on an application that will not work, identify which lenders on our panel of more than 100 offer guarantor loans on the best terms, structure the guarantee as limited to keep your parents’ exposure to a defined amount, coordinate the independent legal advice your parents are required to obtain, and monitor when the guarantee can be released so we can apply promptly. The team has been based in central Penrith since 2005, holds Australian Credit Licence 390611, and the service is free to you. For the full local picture see our Penrith mortgage broker page, and our guarantor home loan page covers the service in more detail.
Frequently Asked
Guarantor FAQs
The questions families ask most about going guarantor.
Can my parents be a guarantor if they still have a mortgage?
Yes, in most cases. An existing mortgage on your parents’ home does not automatically disqualify them. What a lender assesses is the usable equity in their property, which is the difference between what it is worth and what they still owe. As long as there is enough equity to cover the guarantee amount plus the lender’s required buffer, an existing mortgage is not a barrier. The mortgage simply reduces the equity available to work with; it does not remove the option.
How much equity do my parents need to be a guarantor?
Enough to cover the guaranteed portion of your loan while keeping their own position within the lender’s limits. As a general guide, lenders want the guarantor’s property to sit at a loan-to-value ratio of no more than around 80 percent once the guarantee is added on top of their existing mortgage. The exact requirement varies by lender and depends on a formal valuation of the property, so the figures you calculate yourself are only an indication until a lender assesses it.
What is a limited guarantee?
A limited guarantee means your parents guarantee only a specific, capped portion of your loan rather than the whole debt. Most family guarantees are structured this way. Typically the guarantee covers just the shortfall between your deposit and the 20 percent threshold, so if you have 5 percent, the guarantee covers roughly the 15 percent gap. This limits your parents’ exposure to a defined amount rather than the entire loan, which is a key protection and something a broker should structure carefully.
Do my parents have to make repayments on my loan?
No. As guarantors, your parents make no repayments on your loan. They provide their property as additional security, but they do not go on the loan and they do not contribute to repayments. They are only called upon if you default and the lender cannot recover the debt from the sale of your property. In practice most guarantor arrangements proceed to release without the guarantors ever being called on, though the risk is real and is why independent legal advice is required.
What are the risks for my parents as guarantors?
The core risk is that if you cannot meet your repayments and the lender cannot recover the debt from your property, it can enforce the guarantee against your parents’ property, up to the guaranteed amount. In the worst case that could mean your parents lose equity or, in extreme circumstances, their home. This is uncommon, because the guarantee is limited and lenders pursue guarantors only after other options are exhausted, but it is the legal reality. Every guarantor must obtain independent legal advice before signing so they fully understand it.
Can my parents be guarantors if they are retired?
Sometimes, but it depends on the lender. Some lenders are cautious with retired or near-retirement guarantors because they want confidence the parents can continue to service their own mortgage. Where the parents have significant equity and an acceptable income source such as superannuation, investments, or a pension, some lenders will still consider the application. Lenders differ considerably on this, so it is worth identifying the more flexible ones before applying rather than after a decline.
How and when is the guarantee released?
The guarantee is not permanent. Once you have built enough equity in your own property, through repayments, property value growth, or both, you can apply to have the guarantee removed, which releases your parents’ property from the second mortgage. Most lenders will consider release once your loan-to-value ratio falls to around 80 percent or below. How long that takes depends on your repayments and the market, so it varies. A broker can monitor the position and apply for release once the threshold is reached.
Is a family guarantor the same as the government’s 5% Deposit Scheme?
No, they are different things that solve the same problem of a small deposit. A family guarantor uses your parents’ property equity as security, and your parents take on a real liability. The Australian Government 5% Deposit Scheme, formerly the First Home Guarantee, has the government guarantee the gap instead, so your family has no involvement or liability under it. The two generally cannot be combined, and a broker can help you work out which suits your situation better.
The bottom line
Your parents having a mortgage is rarely the obstacle it seems. What matters is the equity in their home, and if there is enough to cover a limited guarantee with a buffer, an existing mortgage is not a barrier. A well-structured guarantee is limited in amount, released once you build equity, and one of the most practical ways into the market without a full 20 percent deposit.
It is still a serious commitment for your parents, with real risks that independent legal advice exists to make clear. The sensible approach is to run the actual equity numbers, understand the risks as a family, and compare a guarantee against the alternatives like the government’s 5% Deposit Scheme before deciding. None of it guarantees approval, which rests with the lender, but it gives you a clear and honest basis to choose.
Next Reads
Related guides
Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal, or tax advice. It does not take your personal or financial circumstances into account. Before acting on any information here, you should consider whether it is appropriate to your objectives, financial situation, and needs.
Guarantors must obtain independent legal advice. Going guarantor is a significant legal commitment with real risks, including the possibility of loss of equity or property if the borrower defaults. Lenders require guarantors to obtain independent legal advice before signing, and that advice should come from a solicitor, not a broker. Nothing here is a substitute for it.
Figures are illustrative. Any equity figures, percentages, or worked examples here are illustrations to explain the mechanics, not an assessment, offer, or promise. Actual eligibility depends on a lender’s valuation and assessment and differs between lenders. No broker can guarantee loan approval or a guarantee being accepted.
Government schemes change. Details of the Australian Government 5% Deposit Scheme, including price caps and eligibility, are set by Housing Australia and are subject to change. Confirm the current position with Housing Australia before relying on it. A government guarantee under that scheme is distinct from a family guarantor arrangement.
Tax and estate matters. Questions about the tax or estate implications of going guarantor should be directed to your accountant or solicitor.
About the reviews shown. The reviews displayed on this page are genuine reviews published by clients on Intellect Finance’s Google Business Profile, shown live via a third-party reviews widget. They reflect those individuals’ own experiences and are not a promise of any particular outcome for your loan.
Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees, and terms apply.
Free Family Consult
See if your parents’ equity is enough. Free, No Pressure.
Book a free 15-minute call. We will run your parents’ equity numbers with you, explain the risks and the limited-guarantee structure plainly, and tell you honestly what is possible, including whether the government’s 5% Deposit Scheme might suit you better. No obligation, and free to you. Based in central Penrith since 2005. ACL 390611.
General information only, not financial advice. No fee to you; we are paid by the lender, and any rare fee is disclosed in writing before any work begins. No broker can guarantee loan approval.
Intellect Finance Pty Ltd | Australian Credit Licence 390611 | AFCA Member