5 ways to lower your LVR
Learn 5 simple ways to lower your LVR, increase your equity, and improve your chances of approval.
Low LVR home loans can unlock a range of benefits that can help you save as a borrower. From not needing Lenders Mortgage Insurance (LMI) and taking advantage of lower interest rates to accessing better loan terms and facilities, there are a number of reasons why it can be worth aiming for a low LVR mortgage.
So, if you’re looking for a few tips and tricks to help you lower your LVR, we’ve got you covered.
What’s my LVR?
Short for Loan to Value Ratio, your LVR is a percentage figure that represents the total value of your home loan compared to the current value of your property. Working out your LVR is easy. All you need to do is plug your figures into the following equation:
(Loan amount / Property valuation) x 100 = LVR
For banks and lenders, your LVR provides them with an indication of the level of risk associated with your home loan. Ultimately, the higher your LVR, the more reliant you are on your mortgage to finance your property and the higher risk you pose as a borrower, in the eyes of the bank. Banks and lenders will often charge borrowers with LMI or a Low Deposit Premium (LDP) to cover them in the event you’re not able to keep up with your repayments. In some cases, you might even be charged a higher interest rate or have limited access to home loan features and facilities.
Whether you’re looking for a competitive interest rate or you’re just keen to save on LMI or LDP, here are 5 ways you can lower your LVR.
1. Save for a bigger deposit
One of the most common ways to lower your LVR is by saving for a bigger deposit. The more money you can put down upfront, the lower your loan amount will be relative to the property's value.
That said, it’s important to consider the state of the property market. If property prices are set to increase, you could find yourself in the exact same situation 6-12 months down the track if you decide to knuckle down and save while house prices grow at the same rate. In this instance, you could be better off biting the bullet and jumping into the property market, even if you do have to lay out for LMI or an LDP.
Remember there’s often more than one factor at play when it comes to buying a home, so do your research so you can make informed decisions.
2. Buy a home with a lower purchase price
If you’re not able make significant headway with your savings, it could be time to compromise on the property you’re after by going for a home with a lower purchase price.
Opting for a less expensive property will in turn reduce the amount you need to borrow, which can help lower your LVR. In this case, you might need to consider a different type of property or start looking in different suburbs or locations to secure a property with a lower purchase price.
3. Consider a guarantor loan
Some banks and lenders offer guarantor loans, where a family member, usually a parent, puts up their property as security for your loan, taking your deposit up to the equivalent of 20%. This can help you secure a loan with a smaller deposit and a lower LVR while also avoiding LMI or an LDP.
Guarantor home loans don’t come without their fair share of risk. If you fail to keep up with your mortgage repayments, it will fall to your guarantor to pick up where you left off. As such, it’s important to make sure both you and your guarantor are aware of the risks and your obligations when it comes to a guarantor home loan.
4. Look for government grants or incentives
The Australian Government understands just how difficult it can be for first-time home buyers to break into the property market, which is why they’ve developed a range of different grants and incentives to help. Depending on your circumstances and the location of the property, you may be eligible for government grants or incentives that can help you increase your deposit or reduce your loan amount.
From the First Home Owner Grant (FHOG) to the Home Guarantee Scheme (HGS), it’s well worth taking the time to explore any assistance that you might be able to take advantage of.
5. Receive monetary gifts
Saving up a 20% deposit towards a home loan is no easy feat, which is why many first-home buyers rely on financial gifts from their parents or family to help them get into the market with a lower LVR. If you’re lucky enough to receive a bit of cash to put towards your future home, you might be required to provide your lender with a statutory declaration to prove the money is a gift and you don’t have to repay the funds.
It’s important to note that monetary gifts are often viewed as ‘non-genuine savings’ by many banks and lenders. You should keep in mind the importance of having good saving habits to accumulate ‘genuine savings’ which will often still be a factor in your home loan assessment.
While having a low LVR home loan can help you to save on your mortgage in more ways than one, you’re not out of the property race completely if you have a smaller deposit. Check out our blog on 5 things to consider if you don’t have a 20% deposit for more information on your options.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Tax law is complex and subject to change. For the latest information, check the ATO website or with your accountant or financial advisor.
Unloan is a division of Commonwealth Bank of Australia is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
