Learn why bigger Home Loan deposits work better
If you’re planning on purchasing your first home, you consider the amount of deposit that you will be saving up. This provides flexibility with repayments and gives you freedom to switch your loan later on. The more you put in for a home loan deposit, the less you have to borrow from the banks. A Loan to Value Ratio (LVR) less than 80% would mean that you could manage and afford a lower mortgage repayment for the life of the loan.
LVR or Loan-to-Value-Ratio is also referred to as LTV. It is the percentage set by banks that represents the amount you can borrow out of the total purchase price of the property. A lower LVR percentage would also give the lenders lower risk when you apply for a home loan. Generally, lenders assess the loan application and the home loan interest rates based on the LVR and loan size. So if you have prepared for a bigger deposit, you’ll get a chance to achieve a lower interest rate and avoid paying Lender’s Mortgage Insurance premiums.
LVR is calculated by dividing the property value or purchase price (multiplied by 100). For instance, a borrower would like to purchase a home loan worth $400,000. Their savings are 25% of the cost for a deposit, so they would only borrow $300,000. The loan amount is divided by the purchase price (multiplied by 100) to get the percentage (LVR). Refer to example below:
$300,000 X 100 = 75% LVR
Saving for a bigger deposit could be one of the biggest challenges in applying for a home loan – but this may benefit the borrowers if they are going to prepare for it.
Here are a few things that you may benefit from a bigger home loan deposit:
• Avoid paying Lender’s Mortgage Insurance – These premiums can be avoided if you are going to save at least 20% for the deposit.
• Lesser risk involved with the lenders – Most banks are willing to negotiate with low-risk borrowers.
• Get better home loan interest rates – Lenders provide a lower interest rates on loans with lower LVRs. Typically loans below 80% LVR.
• Refinance, access your equity and purchase an investment property – you can access your equity after a few years and use it for your next investment!
• Lower mortgage repayments – with lesser amount to borrow, you can expect that the repayments will also be lower!
Call 1300 307 155 and start saving today!
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