How your LVR could nab you a better home loan

If you’ve been paying off your mortgage for some time, you may not be aware that your diligent repayments could be your ticket to a more competitive home loan option.

Many first home buyers will opt for a no-frills home loan option when trying to buy property as, after all, you’re just happy to get mortgage approval. And for the privilege of owning your first property you may be paying a higher interest rate than more ‘ideal’ customers, or you may have a home loan without helpful features, like an offset account or redraw facility.

However, after a few years of repaying your mortgage, you may find that you’re in a stronger financial position. This is where you may be able to turn your lower loan-to-value ratio into a better home loan for your goals and budget through refinancing.

How a deposit impacts your home loan offer

When you apply for a home loan the lender will assess a range of factors to determine if you can service the mortgage responsibly. This includes your deposit size, income, expenses and credit history.

With most owner-occupier home loan terms sitting between 20-30 years, that’s a considerable amount of time to improve your financial situation. And one of the most significant improvements may be your loan-to-value ratio (LVR).

Your LVR is the difference between the loan amount you want to borrow and the value of the property. When you first buy a home, this is determined by your deposit size. For example, if you had saved a 15% deposit for a property, you would be borrowing 85% of the property’s value, meaning the LVR would be 85%.

A rule of thumb when applying for a home loan is to aim for a deposit of 20% or more. This allows borrowers access to a lender’s more competitive home loan products with lower rates and fees, and potentially more features. But, as many first home buyers in capital cities across Australia know, saving up for a deposit of 20% by yourself is near impossible without a substantial income or family help. Many first home buyers instead save a smaller deposit and apply for a home loan with a higher LVR (95-85%).

After several years chipping away at your home loan’s principal, you may now find that you’ve reduced your LVR. Further, your financial situation may have improved, such as an increase to your income through a promotion, or paying off an existing debt. All of these factors may put you in a more competitive position to refinance to a ‘better’ home loan more aligned with your mortgage goals.

Refinancing on the rise

The number of Australian homeowners refinancing has steadily increased since the Reserve Bank of Australia (RBA) cash rate cuts of 2019. But the trend of refinancing has spiked considerably in the last few months, as homeowners anticipate that the record-low interest rate environment may be coming to an end.

Comparison website, RateCity, analysed the latest Australian Bureau of Statistics (ABS) Lending Indicators and found that $17.22 billion in mortgages were financed in the month of July alone. This was a jump of $978 million, or 6%, month-on-month (in seasonally-adjusted terms).

Value of externally refinanced loans in July

Amount in July 2021 Monthly change Year-on-year change Change from 2 years ago
$17.22 billion

(highest ever)

$978 million

(6%)

$6.45 billion

(60%)

$8.71 billion

(102%)

Source: RateCity.com.au, ABS Lending Indicators July 2021, released 2 September 2021, seasonally adjusted data. Annual change is July 2020 to July 2021, and 2-year change is July 2019 to July 2021.

While RBA Governor Philip Lowe has indicated they do not plan to lift rates until key inflation targets are met, presumably in 2024, it hasn’t stopped a growing number of homeowners refinancing to lock in competitive interest rates while they still can. According to RateCity, ABS data also showed that the proportion of fixed rate loans has increased from 15.5% in July 2019, to 47.1% in July 2021. Meaning, nearly half of home loans are on fixed interest rates.

If you follow this trend, it may indicate that borrowers are predicting rates to rise shortly so they are striking while the iron is hot. If your fixed rate period is coming to an end and/or you’ve been reducing your loan principal for some time, it may be worth considering refinancing in 2021.

Nabbing a rock-bottom home loan with your new LVR

Speaking of the low-rate environment, Reduce Home Loans has consistently offered customers some of the most competitive home loan interest rates in Australia.

The record-breaking Super Saver 60 Variable home loan is the current lowest owner-occupier variable rate home loan (paying principal and interest) on the market. And speaking of LVRs, this historic home loan refinance rate is reserved for borrowers with a loan-to-value ratio of 60% or less. Meaning customers who have diligently been paying off their mortgage may be rewarded for their hard work and patience with a home loan rate starting with a ‘1’.

For those with LVRs of 80% or less, you may also be eligible for other home loan options, including the Super Saver Cash Back Variable home loan, with cash back of $1000 or $2000 up for grabs. As refinancing can often come with costs, such as break fees if leaving a fixed rate period early, cash back offers may help to reduce these upfront expenses.

Homeowners considering refinancing will still need to ensure they meet any eligibility criteria set by the lender, such as income minimums and having a good to excellent credit score. But, as mentioned earlier, after repaying a mortgage for many years this may have already occurred for some borrowers.

Speak to one of Reduce Home Loans’ specialists to learn more about our refinancing offers today.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.