What is a Limited Guarantee?
A limited guarantee is a way for a guarantor to help someone secure a home loan—without being responsible for the full loan amount. Instead, they only guarantee a portion of the home loan. This can be a great option for families looking to support each other while managing risk.
That said, limited guarantees can be complex, as multiple parties and properties are often involved.
How Does a Limited Guarantee Work?
While similar to standard guarantor home loans, limited guarantees differ in one key way: the guarantor is only responsible for a portion of the home loan rather than the full amount.
As with other guarantor arrangements, the guarantor typically offers their property as additional security, but the bank limits how much of the borrower’s mortgage they’re backing.
How is the Guarantee Amount Determined?
Each guarantor home loan lender has its own method for calculating the guarantee portion, often based on the loan size, property value, and how much equity the guarantor holds.
Our team of mortgage brokers on the Sunshine Coast and in Paddington, Brisbane can help you work out exactly how much would be required, based on your circumstances and the lender’s criteria.
What Are Lenders Looking For?
To be eligible, guarantors generally need enough equity in their property to cover the portion of the guarantee.
Lenders will assess the total debt on the guarantor’s property—this includes their current mortgage and the limited guarantee amount. Most lenders require that this total remains under 80% of the property’s value.
In some cases, a second mortgage may be used if the guarantor still has an existing home loan.
What Are the Benefits of a Limited Guarantee?
Limited guarantee Home Loans come with many of the same advantages as full guarantor loans, such as:
- Borrowing up to 100% of the property purchase price
- Avoiding Lenders Mortgage Insurance (LMI)
- No upfront cash required from the guarantor
- Reduced financial risk for the guarantor, since only part of the loan is secured
When Can a Limited Guarantee Be Released?
A limited guarantee can usually be removed once the borrower has built up sufficient equity or paid down the loan to a certain point—often when the loan balance falls below 80% of the property’s value.
- To release the guarantee, most lenders will require:
- Proof that the borrower can meet repayments independently
- A strong history of regular repayments
- A reassessment of the property’s current value
- If the loan still exceeds 80% of the property value, the borrower may need to pay LMI when the guarantee is removed.
Let’s Talk About Your Options
Not sure if a limited guarantee is right for you or your family? We’re here to help. At Orchard Mortgage Brokers on the Sunshine Coast and in Paddington Brisbane, we’ve guided countless clients through guarantor and limited guarantor home loan arrangements—and we’d be happy to explore what’s possible for you.
Give us a call on (07) 5475 4500 or email [email protected] to book a no-obligation chat with one of our friendly experts. You’ve got nothing to lose—and potentially a whole lot to gain.