How Security Guarantor Loans Work And Why They Could Help You Invest Sooner

Saving a deposit for an investment property can be a major hurdle, especially in Sydney’s property market. But what if there were a way to fast-track your investment plans without paying lenders mortgage insurance (LMI) — and still retain your savings for renovations or future purchases?

That’s where security guarantor loans come in. Let’s break down how they work, who they suit, and why they might be a smart move for the right investor.

What Is a Security Guarantor Loan?

A security guarantor loan allows you to borrow up to 105% of a property’s value by using a family member’s property — typically your parents’ — as additional security.

Rather than contributing a deposit from your own savings, a guarantor supports your application by offering equity in their own property as collateral. This setup can eliminate the need for LMI, potentially saving you tens of thousands of dollars.

A Real-World Example

Let’s say you’re buying an $800,000 investment property in New South Wales. Here’s how the numbers usually stack up:

• 20% deposit: $160,000
• Stamp duty: approx. $33,000
• Total upfront cost: ~$193,000

That’s a significant amount to save. Now, if you went for a 90% loan, you’d avoid needing the full deposit—but you’d be hit with LMI of nearly $18,000, which you can’t claim on tax as an investor.

With a guarantor loan, however, you could borrow up to 105%, covering both the purchase price and stamp duty without paying LMI. And you get to keep your cash — possibly to renovate and increase the property’s value right away.

How It Works: Key Requirements

To set up a guarantor loan, your family member (the guarantor) needs to meet some criteria:

• ✅ Must own a property in Australia (can be their home or an investment).
• ✅ That property should have at least 30% equity — for example, if it’s worth $1 million, the loan on it should be no more than $700,000.
• ✅ Ideally, the property has a low balance or is mortgage-free — lenders prefer guarantees backed by low-risk assets.

This added security lets the lender consider your application at a much higher loan-to-value ratio (LVR) — sometimes up to 105% — without triggering LMI.

Key Benefits

Here’s what makes this strategy appealing for many investors:

• ✅ No LMI — On an $800,000 purchase with a 90% loan, that’s a saving of nearly $18,000.
• ✅ Improved interest rates — Banks assess the risk at 80% LVR, not 90%.
• ✅ Keep your cash — Use your own funds for renovations or a future deposit.
• ✅ Invest while you rent — This works even if you’re renting in a different suburb for lifestyle reasons.

Risks and Considerations

While the benefits are clear, it’s important to weigh up the risks:

• ❌ If you default, your guarantor’s property could be at risk.
• ❌ Relationships can become strained if financial issues arise.
• ❌ You still need to demonstrate your ability to repay the loan on your own income — the guarantee doesn’t replace serviceability checks.

Is This Strategy Right for You?

A security guarantor loan can be a powerful tool for the right borrower — especially those looking to invest sooner and avoid costly LMI. But it’s not without responsibility. You’ll need to ensure both you and your guarantor fully understand the implications.

View the Full Breakdown

Want to see this explained in more detail with real-world numbers? Watch the full video breakdown here: