Whether you’re buying an investment property or your first home, there are a few things a borrower can do to make themselves appear more reliable to a lender in Australia. One of the most recommended tips you may come across is to save a 20 per cent deposit or have an “80 per cent LVR home loan”

Let’s explore just what an 80 per cent LVR home loan is, its benefits and disadvantages, and how you can use this to potentially negotiate a lower interest rate.

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2.59%

Variable

2.64%

Reduce Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

4.45

/ 5
More details

2.79%

Variable

2.86%

Reduce Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.63

/ 5
More details

2.89%

Variable

2.92%

Reduce Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.58

/ 5
More details

1.98%

Fixed - 1 year

2.38%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.46

/ 5
More details

2.06%

Fixed - 3 years

2.38%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.66

/ 5
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2.18%

Fixed - 1 year

2.58%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.15

/ 5
More details

2.68%

Variable

2.69%

Suncorp Bank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.56

/ 5
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2.14%

Fixed - 1 year

2.46%

UBank

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.00

/ 5
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2.59%

Fixed - 5 years

2.53%

UBank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.63

/ 5
More details

3.03%

Variable

2.70%

UBank

$758

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.99

/ 5
More details

Learn more about home loans

What is an 80% LVR home loan?

An LVR is a financial term you may come across in your home loan journey. The LVR, or loan-to-value ratio, of your home loan equates to how much money you’re borrowing (loan amount) versus the value of the property being purchased.

Lenders use this measuring tool to assess your riskiness as a borrower and it can determine your interest rate. In theory, the larger a deposit, the better your financial discipline and ability to potentially meet mortgage repayments.

For example, on a $500,000 property, if you saved $100,000 this would add up to a 20 per cent deposit. This means that you would therefore be borrowing the remaining 80 per cent of the property’s value as a loan from a lender. The loan-to-value ratio is 80 per cent.

What are the benefits of an 80% LVR home loan?

There are a range of benefits to taking out an 80 per cent LVR home loan. In fact, it’s generally recommended to aim for a deposit minimum of 20 per cent due to the raft of benefits, including:

  1. Avoiding LMI. Lenders mortgage insurance (LMI) is a pesky insurance you’ll need to pay if you have an LVR under 80 per cent. As mentioned above, there is higher risk to a lender by lending money to borrowers with smaller deposits than 20 per cent. This insurance helps to protect the lender in the event you default on the loan. It can cost tens of thousands of dollars, and an 80 per cent LVR is a helpful way to avoid this cost.
  2. Less debt. Another benefit to consider is that the larger your deposit, the less debt you’re taking on by having a smaller home loan. This will not only mean smaller ongoing mortgage repayments, but less interest charged over the life of the loan.
  3. Lower rates. Some lenders reward reliable borrowers with LVRs of 80 per cent by offering them more competitive interest rates. The lower your interest rate, the lower your mortgage repayments, which means good news for your budget. In fact, if you have a high LVR you may be offered a higher interest rate. 
  4. Higher chance of approval. When applying for a home loan, you'll find that lenders have their own lending criteria. Most lenders will look at your bank account for proof that you are regularly saving and therefore more financially stable and eligible for a loan. If you have a 20 per cent or higher deposit, this may present you in a more favourable light to the lender, potentially increasing your chance of approval.
  5. More loan options. Some lenders limit borrowers’ access to certain, more competitive, home loan products if they have smaller deposits. By searching for an 80 per cent LVR home loan you may have success to a greater variety of loan options with reduced fees, helpful features or credit card packages.

What if I don’t have a 20 per cent deposit?

Saving up a 20 per cent deposit is no easy feat, especially if you’re looking to purchase property in Sydney or Melbourne where median prices are sky high. There are a few things home buyers can do now to try and bolster their home loan applications and potentially reach an LVR of 80 per cent with a larger deposit.

  • Get a guarantor. If you’re not financially able to save up a 20 per cent deposit yourself, you may consider bringing on a guarantor. This involves having someone else (typically family) come on to your home loan and offer up security (typically home equity) to bolster your application. The guarantor may take financial responsibility if you were unable to meet mortgage repayments. It does not necessarily mean a guarantor covers the whole loan amount. In fact, you can bring a guarantor on to cover the gap in your deposit so you can aim for an 80 per cent LVR. It also means less risk to the lender that you may default on the loan.
  • Boost your credit score. Your credit history is a key factor that determines not only whether you get a competitive interest rate from a lender, but whether you’ll be approved for a loan. If your credit score is not ideal, consider working on increasing it before you apply for your home loan.
  • Move back home. Moving back home with family can be a very simple way to save more money. Rent is arguably the biggest ongoing bill you have and can often be more expensive than mortgage repayments. If you’re aiming for a 20 per cent deposit but still falling short, swallow your pride and head home for a little while to increase your savings.
  • Downgrade or sell your car. A car is another costly expense that can significantly chip away at your budget when saving for a home. If you’re in a suburb with great access to public transport or ride sharing apps, consider selling your car for some extra cash. If this is not possible, you may want to consider downgrading to a more affordable model, just until your loan is approved.

What type of property can I purchase with an 80% LVR home loan?

The good news about 80 per cent LVRs is that you’re opening yourself up to a wider range of home loan options than if you saved a smaller deposit.

80 per cent LVR home loans are typically available to owner-occupiers and investors, whether shopping around for existing dwellings, land packages or new home builds. It will also afford you access to both fixed rate home loans and variable rate home loans. You may also gain access to loans with handy features, like an offset account, redraw facility or the ability to make extra repayments.

All that matters is the valuation of the property is within a range that your deposit does not fall below 80 per cent. Be careful in the real estate search and try to stay within a healthy property price range. This may mean not aiming for your dream postcode right away and looking in similar suburbs nearby – especially for first home buyers.

Also, try to keep up to date with the housing market, so you can watch for potential market value fluctuations. If there is a dip, that may be a more ideal time to buy property. But you may want to avoid buying in an area that will continue to lose property value, so be careful.

How do I find 80% LVR home loans?

  • Comparison tables. This comparison tool allows you to search for and filter down 80 per cent LVR home loans. You can enter the amount you want to borrow and property value to view loans within your LVR range. Then you can filter down and compare options side by side, to find a loan with an interest rate, fees and features that suit your financial needs.
  • Calculators. Not sure which home loan to choose? A home loan calculator may be able to help. Narrow down your short list with a mortgage repayment calculator to see how your loan options and their potential repayment amounts stack up against your budget. You can even calculate how much you may be able to borrow to get a better idea of your LVR before you begin your mortgage search.
  • Mortgage broker. Not sure if you’ll qualify for a 80% LVR home loan? It may be worth consulting with a mortgage broker. Mortgage brokers are considered experts in their field and may be able to offer advice and assistance in being approved for a home loan.

Frequently asked questions

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

What is a credit limit?

The maximum amount that can be borrowed from a lender, as per the home loan contract.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.