There is a lot happening in the market place at the moment. One hot topic is Fintech and artificial intelligence. Listen in to hear some things that are happening.
When you are going through a loan application process with your lender, you’ll notice that banks and other financial institutions like to use a variety of abbreviated terms to describe a range of important elements of the transaction. The LVR or Loan to Value Ratio on your application is definitely one of these as it is a basic fundamental on which all home loans are assessed. That’s why it is vital that you acquaint yourself with its meaning and get a clear understanding of how it impacts your overall loan transaction.
So what exactly is LVR?
LVR or Loan to Value Ratio
Quite simply, your LVR is the amount of money you wish to borrow from the bank represented as a percentage (%) of the total value of the property you wish to purchase.
For example, if the property you would like to purchase is valued at $500,000 and the loan amount sought is $400,000 then your LVR will be 80%. This can be calculated as follows: $400,000 (loan) divided by $500,000 (property value) = 80% loan with a corresponding deposit of 20%.
Now it’s important to note that this percentage is extremely important when it comes to how the bank will evaluate your loan application. Because the lower your LVR, the lower the exposure to risk there is for the bank and therefore the more likely it is for your application to be approved, depending upon your capacity to repay the loan.
Why is your LVR so critical?
- How Much You Can Borrow: There are two important factors which determine how much money you can borrow. Firstly, the bank will look at your servicing capacity or ability to repay your loan and secondly, your equity in the property you wish to purchase which is represented by your LVR. Interestingly, whichever of these two is the lesser, will be the amount you can borrow. That’s why your LVR is key in determining how much you can borrow.
- Maximum LVR: Depending upon your lender and the loan product, financial institutions have what is known as maximum LVR These may vary, however as a rule of thumb the maximum LVR is 95% with a 5% deposit for residential property purchases, either owner occupied or investment properties. With refinancing most lenders will usually only go to 90% LVR, and for Low Doc Loans and Commercial loans this can be as low as 60-70% LVR.
- Lenders Mortgage Insurance: All loans over the 80% LVR threshold will incur a Lenders Mortgage Insurance (LMI) fee. This fee is enforced by the banks as a form of security should you, as a low deposit loan applicant, end up defaulting on your loan repayments. The higher the LVR, the greater the exposure to risk for the bank, the more expensive the LMI will be. Your LMI is determined by a sliding scale and gets more expensive the higher the LVR. It’s important to realise that only the lender is covered by this insurance and even though you are paying for it, this offers no protection to you, the borrower.
- Lower Interest Rates: With a lower LVR you may also be offered a more favourable interest rate on your loan. This is because lenders are inclined to reward borrowers with lower LVRs, and the corresponding lower exposure to risk for the bank, with discounted interest rates. Depending on the lender these discounts can be quite substantial and provide you with significant savings across the life of your loan.
So, if you are considering a property purchase, feel free to give one of our Mortgage Coaches a call to discuss your specific circumstances and LVR position. You will be glad you did.
Until next time Champions,
Harry
Are you looking to buy your first home?
New housing finance figures released by the Australian Bureau of Statistics (ABS) reveal first home buyers are returning to the market, according to the Real Estate Institute of Australia (REIA).
REIA President Malcolm Gunning said the proportion of first home buyers in the market (as part of the total owner-occupied housing finance commitments) had increased to 15 per cent in June, which was the highest it had been since February 2014.
“The number of first home buyer commitments increased by 1.6 per cent for the month, following a 28.9 per cent increase the previous month and is the highest since October 2014,” Mr Gunning said.
Investor housing commitments
The ABS data also revealed investor housing commitments had trended down in June.
“The value of investment housing commitments decreased by 0.9 per cent in June in trend terms following falls in the previous two months, and is well down from its 2015 peak,” Mr Gunning said.
“Overall the figures for June 2017 show the number of owner-occupied finance commitments decreased by 0.2 per cent. If refinancing is excluded, in trend terms, the number of owner-occupied finance commitments increased by 0.3 per cent and is the tenth consecutive month of increases.”
Established dwelling purchase commitments
The number of established dwellings purchase commitments decreased by 0.5 per cent in June, while new dwelling construction increased by 1.9 per cent and the purchase of new dwellings increased by 1.3 per cent.
“The June figures show that the market is adjusting with owner occupiers and first home buyers returning to the market as investor activity decreases in response to the actions of the regulators and banks to limit bank lending to dampen investor demand for property,” Mr Gunning concluded.
Good luck getting into the market with your first home. We are here to help.
Cheers, Harry
Source: https://reiwa.com.au/about-us/news/abs-data-reveals-first-home-buyers-returning-to-national-housing-market/
Number 1
A Mortgage Coach has an intimate knowledge of the lending secrets of the banking industry (Which means they know all the tricks for getting you the best deal possible—including access to the specialist loan products that the public are often unaware of)
Number 2
A Mortgage Coach is able to access specialist mortgage brokers’ networks at all the major banks (Giving them “inside track” access to the personal relationships commonly unavailable to the general public.)
Number 3
As accredited Mortgage Brokers, our coaches are members of the Mortgage Industry Association of Australia (The MIAA is the premier mortgage association in Australia and stringently regulates and monitors the people they accept for membership, meaning your personal details are in safe, trusted hands)
Number 4
As active and practicing professionals, Mortgage Coaches have many years of hands on experience in the finance and banking industry (And because they each write large numbers of loans a year, across varied and unique circumstances, these Mortgage Brokers are able to help ordinary Australians… just like you… secure the best finance options possible.)
Number 5
Approved Mortgage Coaches can access over 300 loans products through 30 different lenders (Which means you’ll get the widest variety of choice and flexibility so you’ll get the most up-to-date, best deal possible for your circumstances!)
Number 6
Professional Mortgage Coaches are trained to source the right loan for just about anyone (Including credit-impaired, self-employed or specific circumstance clients right through to the most credit-worthy of borrowers, and can help you tick all of the boxes with the bank, smoothing the path for your loan.)
Number 7
You’ll find it easy to deal with a Mortgage Coach as there’s one in your area, standing by to save you from the hassle of going into a bank, dealing with parking or navigating the many inconveniences some banks will happily put you through. In fact, your Mortgage Coach will meet you at home, work, (or even at a local coffee shop if you’d prefer!)…on your timetable… at your convenience.