Case study: a guarantor loan that avoided $21,400 in LMI

The situation

A single buyer on $128,000 with $59,000 saved wanted a townhouse at $740,000. At an 8% deposit, LMI would have been around $21,400, capitalised onto the loan.

Her parents owned their home outright and were willing to help, but were nervous about being 'on the hook for the whole loan' — a very common and very fixable misunderstanding.

The challenge

• The parents' exposure needed to be strictly limited and documented
• The parents were retired, so servicing could not rely on their income
• They wanted a clear, realistic timeline for releasing the guarantee
• Not all lenders offer a limited guarantee with a straightforward release process

What we did

We used a limited security guarantee, where the parents' liability is capped at a specific dollar amount secured against their property — in this case $118,000, enough to take the combined security position to 80%.

We selected a lender that assesses the borrower's servicing alone, with the guarantee providing security only, so the parents' retirement income was irrelevant to the assessment. Both parents received independent legal advice, which the lender required.

We then modelled the release: with the buyer's planned extra repayments and modest capital growth, the loan reaches 80% of the property's own value in roughly three years, at which point the guarantee can be discharged.

The outcome

• Purchased at $740,000 with an 8% cash deposit
• No LMI — approximately $21,400 saved
• Parents' exposure capped at $118,000, not the full loan
• Servicing assessed on the buyer's income only
• Guarantee release targeted at around year three

Important caveats

A guarantee is a real legal obligation. If the borrower defaults, the guaranteed portion can be called on. It suits families where the borrower's income is genuinely strong and the deposit is the only gap — not situations where servicing is marginal.

Independent legal advice for the guarantor is mandatory with every lender we use, and we consider that a feature, not a hurdle.