A home loan with a 95% LVR simply means it is available with a 5% deposit. But getting a loan with such a small deposit means your lender will examine your application very carefully and will charge you a lenders mortgage insurance (LMI) premium too.tab
For many borrowers, paying LMI and getting into the market faster is well worth the extra costs.
Most home loans require a 20% deposit (80% maximum loan-to-value ratio). But some products have a maximum insured loan-to-value ratio of 90 or even 95%. This means you can forget the 20% deposit and buy your property with a smaller deposit.
There are few differences between an 80% mortgage and a 95% mortgage. It could be virtually the same product, even with the same interest rate.
There are 2 key differences:
Lenders have tightened their lending standards recently, and borrowers with smaller deposits have had a tougher time getting approved.
Strengthen your application by:
Detailed guide to home loan applications and paperwork
Using the table above you can sort through loans with 95% LVRs and read reviews of the various products and lenders. Look at the fees, flexibility and features the loans come with to get a better idea of which ones work for you.
When you've found a product you're interested in hit the green button and you'll be taken to either a website or a form, where you can leave your details and get in touch with a mortgage expert. They'll guide you through the application process.
Need professional help getting the right loan? Chat to a broker
It is possible to buy a property without saving a deposit at all, but it isn't easy. Most lenders require at least 5% genuine savings. This is often defined as money that's been sitting in your account for at least 6 months. But there are ways around this:
Learn more about how you can save a deposit with our comprehensive deposit savings guide.
Aside from LMI costs and more scrutiny from lenders, getting a mortgage with a 5% deposit means having a smaller deposit. This means borrowing more money and therefore paying more interest.
It also means having less equity in your property, which is potentially risky if your property falls in value and you can't repay your mortgage.
Let's look at both situations.
Getting a loan with such a small deposit inevitably means paying more in interest over time. To get a clearer idea of the difference in interest costs, use our loan repayment calculator and enter your borrowing details. Use the same interest rate and loan term but try entering different loan amounts. The difference in interest you'll pay over the life of the loan can be significant. Here's an example:
Equity refers to the amount of your property that you actually own. In other words, the value of the property minus the mortgage debt. If you buy a home with a 20% deposit you have 20% equity at the start. As you repay the loan principal (the money you borrowed), your equity increases.
But if property prices fall (as they sometimes do) your equity will decrease. If you'd paid off half your mortgage then you're still in a decent position. But if you've just bought a property with only a 5% deposit then even a small price fall could see you end up in negative equity. Having negative equity makes it much harder to sell your property or refinance your mortgage.
As long as you keep making repayments on the mortgage principal your equity should increase in the long term.
Refinancing your home loan can get you a better interest rate, adjust your loan term and take advantage of new features, but there are some things to look out for to make sure it's the right decision for you.
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