What are low LVR home loans?
A low LVR (loan to value) home loan is any home loan in which the loan amount doesn’t exceed 80% of the property value.
These types of home loan usually have the cheapest home loan rates available in the market because the lower the LVR is, the lower the risk is to the bank, hence the competitive rate.
How to get the best interest rate on a low LVR loan?
Generally speaking to get the absolute best interest rate on your home loan:
- Your loan to value ratio must be 60% or less.
- You must be making principal and interest repayments.
- The loan must be for a home (owner-occupier) rather than an investment property.
Do I have low LVR?
Here’s a quick snapshot of interest rates you can expect to get at different LVRs:
- Borrowing up to 60% of the property value (60% LVR) will give you the cheapest rate.
- Borrowing up to 80% of the property value (80% LVR) will give you a cheaper loan.
- Borrowing 90% of the property value will give you a competitive/ reasonable rate, but you’ll pay Lenders Mortgage Insurance (LMI) fee.
- Borrowing 95% of the property value will be an expensive loan, especially if your loan is over $1 million.
It’s worth noting that you still have to meet all other standard lending criteria.
All-time low interest rates
Home loan interest rates are the cheapest they’ve ever been with rates that start with a 1.
And it doesn’t look like interest rates will rise anytime in the near future as the governor of the Reserve Bank of Australia recently revealed the cash rate is not expected to increase until 2023.
To find out the special interest rates on offer from our panel of 50+ lenders, speak with one of our specialist mortgage brokers.
You can call us on 1300 889 743 or fill in our online assessment form.
What are some other benefits of a low LVR home loan?
Apart from having the cheapest home loan rates, a low LVR home loan also means:
You don’t have to pay LMI
Lenders Mortgage Insurance (LMI) is a fee typically applicable when borrowing more than 80% of the property value. The more you borrow above 80%, the higher the LMI fee is.
Going with a low LVR loan means you’re saving thousands of dollars in LMI fees.
You pay less in interest
Since you’re borrowing a lower loan amount, you’ll pay less in interest over the life of the loan.
Let’s look at an example, borrower A borrows 60% of the property value, and borrower B borrows 90% of the property value. For simplicity, let’s say both properties are valued at $500,000, and both get the same interest rate of say 2% p.a. (P&I, 30-year loan term).
By the end of the loan term, borrower B would have paid an additional $49,594 in interest compared to borrower A.
In addition, Borrower A’s monthly repayments will also be lower than Borrower B.
Special cashback offers
Since most lenders want to attract these types of borrowers, you’ll have your choice of lenders and products.
Many lenders also run cashback offers (for both purchasers and refinancers) and fee-free packages to attract these types of borrowers.
Easy home loan process
Your loan application process will be simpler and much more straightforward than say someone who is borrowing over 90% of the property value.
Also, you save time and money because the major banks usually will not order a full valuation of the property and will instead opt for a desktop valuation (Automated Valution Model). However, some specialist lenders may still order a full valuation regardless.
Did you know we can order a free upfront valuation for you!
What are the disadvantages of a low LVR home loan?
There is but one main disadvantage of a low LVR home loan. That is the opportunity cost!
Frankly speaking, for most borrowers having a low LVR home loan makes sense – you get a cheap rate and have lower repayments to make.
However, those who want to invest likely don’t want to have all their savings tied up as equity in the property.
If you have put aside enough savings to cover for emergencies, your savings might be better off invested and earning an income.
Will I get approved?
In order to get approved to get the best interest rate on a low LVR home loan:
- If you’re purchasing a property, you’d need a deposit of 20% or more of the property value plus costs to cover the purchase. Similarly, if you were refinancing, then you will need a minimum equity of 20% or more plus costs.
- You must have a clear credit history.
- You must be buying or refinancing an owner-occupied property (live-in property).
- You must be making principal and interest repayments (P&I).
- The property and the location must be acceptable to the lender.
You must also meet all the other standard lending criteria of lenders such as borrowing power assessment, income and living expense verification.
Tips on low LVR home loans
- Don’t just look at the advertised interest rate, look at the comparison rate as well. The advertised interest rate is the rate you pay on your home loan. This is the rate that catches people’s eyes as it is advertised in big, bold numbers and is usually very attractive. The comparison rate is the rate which factors in the interest rate plus any fees and costs of the home loan such as monthly or annual fees, loan set up fees and valuation fees etc. The comparison rate is more useful because it provides a better picture of the true cost of a home loan.
- Be wary of honeymoon or introductory rates. Many lenders give you a cheaper rate in the first year as a carrot to get you to go with their bank. Of course, you need to consider the ongoing interest rate, not just the rate during the intro period; otherwise, you could get caught out. When comparing lenders, try to look at their discounts at the end of the introductory period. A number of banks and non-bank lenders now offer professional package discounts after the end of the first year.
Are you ready to apply for a low LVR home loan?
Get the best deal on your home loan with over 50+ lenders on our panel to choose from!
Speak with one of our award-winning specialist mortgage brokers by giving us a call on 1300 889 743 or by filling in our online assessment form.