Are you eager to get into the Australian housing market but don’t have the required 20% deposit? If so, you will need find a lender offering a high loan-to-value ratio mortgage when applying for a home loan.
High LVR mortgages are mortgages or home loans that have a higher loan-to-value ratio (LVR) in comparison to the LVR set for other loans. Basically mortgages with a higher LVR means the amount you borrow is much higher in relation to the amount of deposit you are required to outlay.
For instance a home loan with an LVR of 95 percent means that if you wanted to purchase a property valued at $300,000, you can borrow up to $285,000 and the remaining $15,000 is what you need to save as a deposit, which is 5 percent of the property purchase.
A LVR that is higher than 80-90% is considered a higher risk loan and in most cases will require the borrower to take out lenders mortgage insurance (LMI).
What is lenders mortgage insurance?
Lenders mortgage insurance covers the lender if the borrowers default on their mortgage payments. In most cases this is a requirement if the borrower has a high LVR, having borrowed over 80% of the property’s value. If you can provide a deposit of 20% you can avoid the LMI and fees associated with it.
In September 2013 the Reserve Bank of Australia reported that more than one-quarter of Australian home loans are estimated to be covered by LMI.
Want to find a lender offering a high LVR mortgage? Compare some of Australia’s top home loans using the RateCity home loan table on the right.