High LVR home loans
When you take out a home loan, whether it's your first or you've done this before, you need to have a clear understanding of what you are getting into. Most people can't afford to buy a home outright and if you haven't got rich parents or other similar support, then you're going to need to borrow money for your mortgage. The question is, how much will you need to borrow, and what is the cheapest type of deal that you can get? Realistically, it's likely that you'll have to borrow quite a lot, so before you sit down with your mortgage advisor or broker, establish what your options are and the terminology that surrounds them. High LVR loans are one way forward, but be sure that you know what this means.
What are high LVR home loans?
When a mortgage company looks at how much you want to borrow for your new home, it will look at that against what the value of the property is deemed to be and how much of a deposit you have available to put down. This is called Loan to Value Ratio – hence LVR – and it's the proportion of money you need from a lender in relation to the purchase value of the property.
Let's say that you want to buy a house valued at $450,000 and you've got $90,000 to put down as a deposit. That means you're looking for $360,000, making your LVR 80%, the relationship between £$60,000 and $450,000. An 80% LVR rate is usually the minimum that the majority of loan providers will want. If it's greater than that, you may need to take out an insurance policy to protect the lender from default.
How do these loans compare to other products?
High LVR loans can be a good way to get onto the first rung of the property ladder but how much you will pay in terms of costs for setting up and the amount of interest charged will depend on how high the LVR is. It will also depend on your credit history and the lender's certainty, as far as is possible, that you will be able to repay the debt. You should always search for the best possible option because many lenders would like your signature and may, from time to time, offer attractive LVR deals.
Are there particular risks involved with these loans?
The valuation of the property that you want to buy is important as valuations can fluctuate, potentially leaving you with more money to spend in the long term. Always employ an independent professional, and try to get an "arm’s length" valuation so that neither the lender nor the buyer is involved. If the lender considers you higher risk but is still prepared to lend you the money having assessed the LVR, expect to pay a higher interest rate. If things go well, you're on the road to having your own property as a tangible asset well into the future.