Best LVR home loans*
When you're examining options to finance your new home, you need to not only take the time to explore those options in depth but also to be absolutely clear as to what you are taking on in the form of a loan. Mortgages are a familiar concept for anyone who wants to buy or has already bought a property, but how do mortgage companies make the decisions as to whom they will lend and how much they will permit you to borrow? Some of the terminology can be tricky if finance is not your field (and for most people, it isn't), but you can learn enough to get a broader understanding of what everything means. One of these aspects is the term LVR, and when you know about that, it will make your decision-making when negotiating a loan easier.
What are the best LVR home loans?
Firstly, you need to be clear about what LVR means. In basic terms, a mortgage company will look at the value of the home you want to buy, how much you want to borrow to buy it, and what level of deposit you will be putting forward to try to secure it. LVR means Loan to Value Ratio and relates to the property's purchase value in proportion to how much money you require from the lender.
As an example, let's say you want to buy a house valued at $400,000 and you have a deposit of $100,000 to put down. Therefore you want to ask the lender for £300,000, so the relationship between $300,000 and $400,000 is 75% ($300,000/$400,000) – that's your LVR. LVR rates differ depending on the home valuation and how much money you can place as a deposit. A 75% LVR is below the 80% that is generally the minimum that most loan providers will lend on, though you may discover ones that will go for 85% or 90%. However, as the risk is greater for lenders with higher LVR loans, you'll pay more in terms of your interest rates and, quite likely, your set-up costs.
How do these types of loans compare with others?
It's important to remember that these are mortgages to enable you to buy a home. You should do plenty of research to get useful comparisons because companies differ in what they will offer when looking at LVR. The bigger deposit you have, the more likely you are to get an attractive interest rate from the start because your LVR percentage is lower. If you have an LVR below 80% you will usually have to have lenders' mortgage insurance, a one-off payment that protects your lender in case you default.
What risks are associated with these loans?
When you take out a loan make sure you are able to pay it back in the agreed instalments. If personal circumstances change and you are unable to make the repayments for a time you must talk to the lender. Lenders would much rather you paid back less on a regular basis than defaulting completely.