The Mortgage Agency
High LVR Loans
The loan-to-value ratio (LVR), which is the amount of the mortgage compared to the property value, plays a major part in a lender’s decision to approving a home loan application. Lenders typically prefer a low LVR, with 80/20 being the sweet spot for their security. This means you – the buyer – pay a 20% deposit and borrow 80% of the purchase price.
Lenders do approve high LVR loans where borrowers are seeking a loan for higher then 80%, but this has the condition where borrowers incorporate the extra expense of lender’s mortgage insurance (LMI) onto the loan as an insurance incase the borrower defaults on the loan.
High LVR home loans allow borrowers to enter the property market sooner, as they don’t need to spend extra time saving up a deposit. However, they can be significantly more expensive.
What Is a High LVR Home Loan?
An LVR over 80% is considered high, as you’ll be paying less than a 20% deposit. The higher your LVR, the more high-risk you are seen as a borrower. That’s why lenders require insurance to cover them in the instance that borrowers cannot honour their monthly mortgage repayments anymore.
A 20% deposit is considered enough security to cover their losses, but paying less than 20% means you’ll have to pay LMI. For this reason, many people wait and save up the 20% deposit before buying property to avoid paying LMI. But, there are various ways to have a high LVR and waive LMI – if you qualify.
Do you have less than a 20% deposit but think you are eligible for an LMI waiver? Contact us today, and our mortgage insurance experts will assess your situation and help you achieve your financial goals.
Why High LVR Home Loans Can Be More Expensive
While you can be approved for high LVR home loans, you will probably have to pay extra for LMI, plus higher interest rates. Because high LVR loans are a bigger risk for lenders, they often charge higher interest rates as its considered a risker loan.
This results in a higher total amount of money owed. But the attractive part is that you can secure a home loan sooner, thanks to a smaller deposit. Many people see it as more financially viable to save up the 20% deposit, secure a low LVR, and eliminate those extra expenses.
Are you prepared to potentially pay more for the reward of becoming a homeowner sooner? The Mortgage Agency can help you identify the lowest interest rates and secure the best deal.
Applying For a High LVR Home Loans
Lenders often would approve high LVR loans if the clients meet their lending criteria.. . Doing this reduces the borrower’s risk of getting into financial hardship and offers lenders more security.
You can calculate your minimum deposit requirement depending on the maximum LVR offered on a home loan. If the property is $350,000 and the maximum LVR is 80%, the deposit will need to be at least $70,000. If the LVR is lower, at 60%, the deposit is much more – a minimum of $140,000.
Certain lenders offer a high LVR loan of up to 95%. A 95% loan to value ratio means you only have to pay a deposit of 5%, plus potential mortgage insurance costs. They will enforce stricter rules when approving your loan.
The lending criteria are not always easy to meet when you apply for a loan that has a high loan to value ratio. Lenders typically require all of the following:
- a good credit history
- proof of consistent employment
- permanent Australian residency or citizenship
- Ideally minimal debts
- a high income versus loan amount, and
- proof of genuine savings of a minimum of 5% of the home’s value.
Applying for high LVR loans can be stressful because you don’t want to make a mistake and have a declination on your record. A mortgage broker from our team can assist with the application for your property purchase because we know what most lenders require.
Why Most People Opt For Low LVR Home Loans
Having a deposit that’s 20% of the purchase price will ensure you avoid LMI fees, plus you’ll benefit from lower interest rates.
What’s more, taking out a low loan-to-value ratio loan maximises your borrowing power. Lenders see you as a low-risk client, so you can potentially be eligible for more loan products and services. And, paying a bigger deposit means that you’ll be able to pay off your home loan quicker, or you can arrange smaller monthly mortgage payments.
Another thing to think about is that the lower your LVR is, the quicker you can increase the equity in your property—the more you pay towards your loan, the more your equity rises.
Are you unsure which of the two LVR loans is best for you? Contact The Mortgage Agency, and we can explain the differences in detail and help you make an informed decision.
How We Can Help
Our mortgage brokers have worked in this industry for many years and have valuable experience in both high and low LVR home loans.
We can help you calculate your LVR, assess your financial situation, and determine your borrowing power. This will give you a good idea of whether your loan is likely to be approved or not. We’ll also determine the other costs involved so that you can budget towards them, such as stamp duty.
When you’re ready to apply for a high LVR loan, our mortgage brokers will help you through your application process and ensure you have all the relevant information and documents.
We always put our clients’ best interests first, so we’ll negotiate the most advantageous savings and the lowest interest rates where possible. We’ll also consider all avenues to help you achieve your financial goals. Contact us today to get started.