An LVR is used to determine the risk profile of a loan application, the higher the LVR, the greater the level of risk for a bank or lender.
When you apply for a loan with a LVR greater than 80% most lenders will obtain an insurance policy called Lenders Mortgage Insurance (`LMI`). This policy protects the bank against any loss in the event of default by the borrower. Although the insurance policy doesn`t protect the borrower, banks will pass the cost of the insurance policy onto the borrower.
Additionally the government requires lenders to hold additional capital for high LVR loans. As a result lenders will offer discounts for customers with a low LVR. Often the lower your LVR, the greater the discount you can secure.
So what does this all mean for you. Firstly if you are buying your first home the maximum LVR a bank will lender is usually 95%. The larger the deposit you can save, the lower your LVR, which will reduce the cost of LMI. If your parents own their own home, you might even be able to apply for a family guarantee loan (if they agree).
If you already have your own home with a mortgage, it might be worth looking to refinance. As property prices increase, it helps reduce your LVR and in turn may help you secure a lower interest rate with a new lender.
An LVR is used to determine the risk profile of a loan application, the higher the LVR, the greater the level of risk for a bank or lender.
When you apply for a loan with a LVR greater than 80% most lenders will obtain an insurance policy called Lenders Mortgage Insurance (`LMI`). This policy protects the bank against any loss in the event of default by the borrower. Although the insurance policy doesn`t protect the borrower, banks will pass the cost of the insurance policy onto the borrower.
Additionally the government requires lenders to hold additional capital for high LVR loans. As a result lenders will offer discounts for customers with a low LVR. Often the lower your LVR, the greater the discount you can secure.
So what does this all mean for you. Firstly if you are buying your first home the maximum LVR a bank will lender is usually 95%. The larger the deposit you can save, the lower your LVR, which will reduce the cost of LMI. If your parents own their own home, you might even be able to apply for a family guarantee loan (if they agree).
If you already have your own home with a mortgage, it might be worth looking to refinance. As property prices increase, it helps reduce your LVR and in turn may help you secure a lower interest rate with a new lender.
© 2023 Loan Marketplace Pty Ltd ABN 42 634 181 301 t/as Get a Better Rate - 19/1 O'Connell St Sydney NSW 2000. Credit Representative 518502, authorised under Australian Credit Licence 389087 of Australian Finance Group Ltd.
Get a Better Rate is a local mortgage broking business. Member of the Australian Finance Group ('AFG') with access to loans from over 40 lenders including Westpac ('WBC'), Commonwealth Bank ('CBA'), ANZ, National Australia Bank ('NAB'), Macquarie Mortgage Solutions ('MBMS'), Pepper Money, ING Direct, AMP Bank, Suncorp and many more.
This site contains logos all of which are copyright of their associated bank or lender. No infringement of copyright is intended. If anything on the site breaches your copyright, please let us know, and we will remove the offending material.
The comparison rate is based on a loan amount of $150,000 over a 25 year term. WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Terms, conditions, fees and charges apply and your full financial situation would need to be reviewed prior to acceptance of any offer or product.
