Loan-To-Value Ratios

Loan-to-value ratios are the percentage that you can borrow against the purchase price of property. Loan-to-value ratios are also known as LVRs and are usually shown as a percentage. For instance, if the property you wanted to purchase was valued at $400,000 and the lender had a maximum loan-to-value ratio of 90 percent, then you can borrow up to $360,000 and will need to outlay a deposit of $40,000.

In October 2010, Mortgage House was one of the first in the year lenders in the year to offer a home loan with an LVR of 105 percent LVR. This means that borrowers can receive 105 percent of the value of the property. For instance, if you wanted to purchase property valued at $300,000, you could borrow $315,000. These types of higher loan-to-value ratio loans are great because borrowers will not require any deposit and essentially will have more money left over to use towards fees or to buy furniture and items for the house.

Before the global financial crisis, there were more loans available with higher loan-to-value ratios compared to now. For instance, RateCity recorded that in mid-2008 more than 600 home loans that offered up to 100 percent LVR.

RateCity recorded that the highest home loan with a 100 percent LVR since mid-2008 was in September 2009, which shows that very high LVR mortgages could be making a comeback to the market.

Borrowers need to be aware however that not everyone can apply for these loans with higher loan-to-value ratios. They need to have a great credit record and show that they can meet repayments from previous loans and credit cards.

Also be aware that while these types of loans are attractive, there could be risks involved. Loans with higher loan-to-value ratios often have much higher interest rates as these types of loans can be seen as more of a higher risk to lenders. The reason for this is that deposits are used as a form of security against loans with lower loan-to-value ratios.

If you are in the market for a home loan and are considersing a high loan-to-value ratio home loans, make sure you do your research and compare home loans online as you may be able to find yourself a better deal. Check out the table below which lists some variable home loans currently available.