- When obtaining a home loan, whether it’s your first or a refinancing, lenders will want to determine your loan-to-value ratio (LVR). This significant figure determines the percentage of your property that you will own from the start and the interest rate you qualify for. The impact of your LVR on your interest rate will now be explored by examining the statistics.
It pays to have more equity and a bigger housing deposit
Your loan-to-value ratio (LVR) at the beginning of your mortgage is determined by the amount of your housing deposit, while in case of refinancing, it is based on your equity. The deposit and equity both represent your financial involvement in your home, which affects the level of risk you pose to the lender. If your financial stake is low, the lender’s financial stake is high, leading to a higher interest rate. Mozo database records reveal that the average variable interest rate for each LVR category decreases substantially as you increase your ownership percentage.
Average variable interest rates by LVR tier (17 May 2023)The amount of deposit and loan-to-value ratio (LVR) that a home buyer chooses can have a significant impact on their monthly repayments. Although a larger deposit and lower LVR may result in higher upfront costs, it can lead to significant savings in interest over the long term. For instance, if Ally is considering purchasing a $500,000 property with a 25-year mortgage, the size of her deposit and LVR will affect her overall home loan expenses. It is important to note that these expenses do not include any fees charged by agents or lenders, or stamp duty.
| Deposit (%) | Deposit ($) | LVR tier | Interest rate | Monthly repayments | Total interest |
| 5% | $25k | 95% | 6.86% p.a. | $3,489 | $546,810 |
| 10% | $50k | 90% | 6.22% p.a. | $3,289 | $486,724 |
| 20% | $100k | 80% | 5.90% p.a. | $3,191 | $457,304 |
| 30% | $150k | 70% | 5.92% p.a. | $3,197 | $459,130 |
| 40% | $200k | 60% | 5.57% p.a. | $3,091 | $427,412 |
Comparing your options can help you make a decision that suits your needs. North Sydney Mortgage Broker Speed Lending offers expert guidance and support. Visit their landing page at Buying Home or Click here to calculate your borrowing capacity by yourself.