Madd’s extraordinary growth as one of Australia’s leading mortgage broker companies can be attributed to several factors, with our specialisation in Guarantor Loans being a key driver. Unlike many brokers who avoid these loans due to the extra effort involved, we enthusiastically embrace and excel in handling guarantor loans. We firmly believe that it’s a MADD approach to assisting you in purchasing your first home

To gain a comprehensive understanding of how these loans operate, please continue reading below. If you have any questions or need further clarification, our team is always here to assist you.


Guarantor loans are commonly used by individuals who may not have a sufficient deposit, a strong credit history, or a stable income to meet the lender’s requirements for a loan on their own. Having a guarantor can provide additional security for the lender, increasing the chances of loan approval.

Guarantor’s Role

The guarantor’s role is to provide a guarantee to the lender that they will repay the loan in the event that the borrower defaults. This means that the guarantor’s assets, such as their property or savings, can be used by the lender to recover any outstanding loan amount. The guarantor is usually required to undergo a thorough assessment by the lender to ensure their financial capacity to fulfill this obligation.

Loan Terms

The terms and conditions of guarantor loans can vary between lenders. It’s important for both the borrower and the guarantor to carefully review and understand the loan terms, interest rates, repayment schedule, and any potential fees or charges. Seeking independent legal and financial advice is recommended to ensure all parties are fully aware of their rights and responsibilities.

Risks and Considerations

Guarantor loans carry certain risks for both the borrower and the guarantor. If the borrower defaults on the loan, the guarantor may be required to repay the outstanding amount, potentially putting their own financial security at risk. It’s crucial for all parties involved to have open and honest communication and a thorough understanding of the potential implications before entering into a guarantor loan agreement.

Guarantor’s Eligibility

Lenders typically have specific eligibility criteria for guarantors. The guarantor is often required to be a close relative or family member, such as a parent or sibling, with a stable income and a good credit history. Lenders will assess the guarantor’s financial capacity to meet the loan obligations and may require them to provide documentation and undergo a credit check.

Exit Strategy

It’s advisable for the borrower and the guarantor to have a clear exit strategy in place. This could involve establishing specific milestones or criteria that, once met by the borrower (such as reaching a certain loan-to-value ratio or having a stronger credit history), would allow the guarantor to be released from their obligations. Having an exit strategy ensures a transparent and mutually agreed-upon plan for the eventual release of the guarantor.

Communication and Trust

Open and honest communication is vital between the borrower and the guarantor throughout the loan term. Both parties should have a clear understanding of each other’s expectations, responsibilities, and potential risks involved. Building and maintaining trust is key to ensuring a successful guarantor loan arrangement.

How And When To Remove A Guarantor

Guarantor loans are quite similar to a standard home loan, however the major point of difference is a selected guarantor – commonly a parent – offer their own assets (usually one property) as security to the loan.

Considering the benefit of side stepping saving for a 20% deposit, guarantor home loans are on the rise. While they have proven to be an incredibly effective strategy for breaking into the property market faster, understanding how to remove a guarantor and when you should do so is equally important.

Understanding The Process Of Removing A Guarantor

While the risks of becoming a guarantor aren’t to be denied or dismissed, the good news is that defaults of this magnitude are relatively uncommon. In addition, many guarantors have the option to only “cover” the buyer until they have paid back the 20% deposit minimum, or until their property value grows so that the loan balance is under 80% of the property value.

If you have made consistent repayments to your mortgage and have significantly reduced the size of your loan, you may be able to remove a guarantor, as this will relieve them from the financial risk of being in such a position. Most homeowners who have gone down the path of a guarantor loan aim to remove a guarantor as quickly as possible, but there are a few factors that will dictate whether a lending institute will allow their exit.

To avoid being hit with Lenders Mortgage Insurance, guarantor loans are generally in place until the borrower has repaid a minimum of 20% of the total loan, or until their property value grows so that the loan balance is under 80% of the property value.

While each lending institute will have slight variations linked to specific guidelines, the general rule is that a guarantor will remain linked to the property in question until the primary buyer actually applies to discharge the guarantor. Until the lending institute approves the changes, the guarantor home loan will still apply.

As a general rule, guarantor loans tend to remain in place anywhere between two and five years. However, this figure can fluctuate depending on how quickly the primary borrower is able to pay down their loan amount, and how fast their property increases in value.

To remove a guarantor you can refinance your mortgage. Alternatively, most banks will allow a borrower to remain on the same loan product when removing a guarantor at 80% LVR.

What’s The Attraction Of Guarantor Loans?

Apart from significantly cutting down on the time it takes to save for a home loan deposit, the major attraction of guarantor home loans is their ability to help an applicant avoid paying Lenders Mortgage Insurance. This is because the guarantor is essentially the ‘backer’ of the buyer and is vouching for their ability to repay the loan.

What’s A Downside To Guarantor Loans?

The downside of guarantor home loans is that in the event that the primary buyer should default on the mortgage, the guarantor may be responsible for paying back the guarantor portion in some rare circumstances. As such, opting to become a guarantor for someone you love isn’t a responsibility that should be taken lightly, as the guarantor is arguably the one that stands to lose the most financially.

Madd Tip

It’s important to note that guarantor loans are a significant financial commitment and should be approached with caution. All parties involved should carefully assess their financial circumstances, seek independent advice, and consider alternative options before deciding to enter into a guarantor loan agreement.

Guarantor Loans

Everything You Need To Know

Everything You
Need To Know

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