Lenders Mortgage Insurance (LMI) can cost $20,000–$40,000 on a typical Sydney purchase. But if your parents own property, they may be able to help you skip it entirely — without giving you a single dollar in cash.
$0
LMI with guarantor
$35K
Typical LMI saved
$0
Cash from parents needed
80%
LVR when guarantee released
What Is LMI and Why Does It Cost So Much?
Lenders Mortgage Insurance is an insurance policy that protects the lender (not you) if you default on your home loan. It's charged when your deposit is less than 20% of the purchase price — i.e., when your loan-to-value ratio (LVR) exceeds 80%.
LMI isn't cheap. On an $800,000 property with a 10% deposit ($80,000), LMI typically runs $20,000–$30,000. It's often capitalised into the loan — meaning you don't pay it upfront, but you are paying interest on it for the life of the loan. The total cost including interest can exceed $50,000.
Strategies to avoid LMI:
- Save a 20% deposit (takes years in a rising market)
- Use the First Home Guarantee scheme (income and price caps apply)
- Use a guarantor — a family member provides additional security to bring your effective LVR below 80%
- Use a Waived LMI deal from certain lenders for specific professions
How a Guarantor Loan Works
A guarantor loan allows a parent (or close family member) to use equity in their own property as additional security for your loan. This doesn't mean they give you money — it means the lender uses their property as additional collateral, which lowers your effective LVR and eliminates LMI.
Here's the mechanics:
- You purchase with a small deposit (even 5% or less)
- Your parents provide a security guarantee using equity in their home
- The lender treats your effective LVR as below 80% (because of the guarantee)
- No LMI is charged
- Once your loan-to-value drops below 80% (through repayments or property price growth), you apply to release the guarantee — your parents' home is freed from security
Real Example — Guarantor Loan in Western Sydney
Want to know if a guarantor arrangement works for your situation?
Tell us about your parents' equity and your deposit situation — we'll confirm if a guarantor loan is possible and what it saves you in LMI.
Or
What Are the Risks to the Parents (Guarantors)?
This is the most important question. A guarantor takes on real risk — and it should never be entered into lightly or without understanding the implications:
- If you stop paying: The lender can pursue the guarantor. Their property can be at risk if you default and there isn't enough equity in your property to cover the shortfall.
- Limitation of liability: Most lenders allow a "limited guarantee" — capping the guarantor's liability to a specific amount (typically the LMI-equivalent amount, not the full loan). This is much safer than an unlimited guarantee. Always use a limited guarantee.
- Ongoing obligation: Until the guarantee is released, the parents' property has a charge against it. This can affect their own borrowing capacity if they need to refinance or borrow.
Lenders are required to recommend that guarantors obtain independent legal and financial advice before signing. Most brokers will ensure this happens as part of the application process — it's a legal requirement, not optional.
Does the Guarantor Need to Have a Mortgage-Free Property?
No — the parents can still have a mortgage on their property. What matters is that they have sufficient equity. For example, if the parents' property is worth $900,000 and they have a remaining mortgage of $350,000, they have $550,000 in equity. This more than covers a typical guarantee amount.
The lender will order a valuation of the parents' property as part of the guarantee assessment to confirm the equity is real.
When Is the Guarantee Released?
The guarantee can be released when the loan-to-value ratio on the child's property drops to 80% or below. This can happen through:
- Regular loan repayments reducing the outstanding balance
- Property value growth (a new valuation is ordered)
- A combination of both
In a rising market, this can happen within 2–5 years. Once the LVR condition is met, you apply to the lender to formally release the guarantee — they assess and confirm the release. After release, the parents' property has no further obligations to the loan.
Guarantor Loan vs the First Home Guarantee Scheme
These are two different tools and they're not mutually exclusive — though you can't combine them in most cases (the FHBG already eliminates LMI without needing a guarantor). The right choice depends on your situation:
- FHBG (government scheme): Better if you're eligible (income under $125K single / $200K couple, property under $900K). No family involvement needed. Places are limited each year.
- Guarantor loan: Better if you're over the income threshold, the property is above the FHBG cap, or all FHBG places for the year are taken. Requires parents to have equity.
- Both not needed: If you have 20%+ deposit (through saving or FHSS), LMI doesn't apply and neither scheme is necessary.
At Mortgagefy, we help many buyers from Bankstown, Lakemba, Liverpool and across Western Sydney use guarantor arrangements to get into the market sooner. The assessment is free and we explain both options side-by-side. See also: Can Parents Help You Buy a Home? Guarantor Loans Guide.
Find Out If You Can Buy Without LMI
A guarantor arrangement could save you $20,000–$35,000 in LMI. We'll check if your parents qualify in one free call.
Ready to talk to a broker?
Get a straight answer about your borrowing power — no credit check, no obligation. Available Mon–Sat 9am–7pm.