Want to enter the property market sooner with a 95% loan-to-value ratio home loan? Compare 5% deposit banks and lenders.
A 95% loan-to-value ratio essentially means you have a 5% deposit, and the bank or lender lends you the rest of the money. So, on a $500,000 property value, that means you need a $25,000 deposit, while you’ll be loaned $475,000.
Before the Global Financial Crisis of 2007-09, and later the Hayne Royal Commission of 2018-19, it wasn’t uncommon for banks to loan more than this. However, 95% LVR is about the maximum you’ll be able to find these days.
In a world of ever-growing property prices, saving up only a 5% deposit is a tempting prospect, especially as you can get into the market sooner. However, there’s a few considerations you might want to make a note of first.
In the market for a home? The table below features some of the lowest-rate 95% LVR (5% deposit) home loans on the market
|Advertised rate||Comparison rate||Monthly repayment||Rate Type||Offset||Redraw||Ongoing Fee||Upfront Fees||LVR||Lump Sum Repayment||Additional Repayments||Pre-approval|
|NO UPFRONT OR ONGOING FEES|| |
Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 95%)
|NO UPFRONT OR ONGOING FEES|| |
Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 95%)
Advantage Package Fixed Rate Home Loan (Principal and Interest) 2 Years (LVR 80%-95%)
Fixed Rate Home Loan (Principal and Interest) (NSW and ACT only) 2 Years (LVR < 95%)
Fixed Rate Home Loan 1 Year
Premium Package Home Loan Fixed 3 Years
Complete Package Fixed Home Loan 3 year (New Customer)
Basic Fixed Home Loan 2 Year (First Home Buyers Deposit Scheme)
Premium Plus Package Fixed Rate Home Loan (Principal and Interest) 2 Years
Fixed Rate Home Loan 3 Years
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 23, 2021. View disclaimer.
Advantages of 95% LVR Home Loans
Less time taken to save for a deposit
Saving money can be tedious. By saving up only 5%, you spend less time saving up. Or you can divert some of your savings to other assets, like shares, or leave some in the bank for a rainy day.
Domain research indicates it takes first home buyers more than seven years to save for a 20% 'entry level house' deposit in Sydney. Saving up 5% would theoretically take only a quarter of that time.
Get into market sooner
With less time taken to save, you can get your keys sooner, and potentially start realising capital growth. Seeing your home appreciate in value could quickly make you forget that you’re paying Lenders Mortgage Insurance (LMI) and a potentially higher interest rate on your home loan. However, it should be noted that capital growth isn't guaranteed.
Take advantage of First Home Loan Deposit Scheme (FHLDS) and other stimulus
The FHLDS is a Federal Government initiative allowing first home buyers to get a 95% LVR mortgage without having to pay LMI. This is a cost saving of potentially tens of thousands. However, spots are limited, and there are other restrictions as well.
States and territories also have various initiatives granting money to first home buyers to put towards their deposit.
Refinance after you build up equity
Equity is essentially how much of the property's value belongs to you - that is, the value of your property minus what you owe on the mortgage. Chances are after a year or so, you could refinance with 20% equity under your belt, and attain a more competitive home loan rate. Of course, if you're still locked into a fixed-rate home loan, you probably won’t be able to do this, unless you're willing to pay break costs.
Disadvantages of 95% LVR Home Loans
Pay Lenders Mortgage Insurance (LMI)
LMI is a pesky insurance premium you pay as the lender assumes more risk. This insurance covers the lender, but the borrower has to pay it. According to Genworth's calculator, a 5% deposit on a $700,000 owner-occupied home could mean an LMI premium of more than $27,000 for a 30-year loan term.
LMI is often capitalised into the loan itself, resulting in a bigger loan repayment. On top of that, you're also paying back 95% of the property's value, as opposed to 80% or less, which makes for a larger fortnightly or monthly payment.
Higher Interest Rates & More Interest Paid
As the lender assumes more risk, you're more likely to face a steeper interest rate. Also, as you’re paying back 95% of the home's value (which attracts interest), you're going to pay much more interest over a 30 year term than across lower LVRs.
Risk of Property Prices Going Backwards
While this is true for any LVR, property prices going backwards is always possible, despite how strong Australian property markets may seem. Owing more on the home than it’s worth is called negative equity. While only a problem if you’re willing to sell, negative equity is not a nice feeling. And if you think of your deposit as a buffer to negative equity, less deposit equals less buffer, and there’s more risk if property prices head south.
Photo by Jason Briscoe on Unsplash