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What is a 95% LVR home loan?

A 95 per cent LVR home loan is a type of low-deposit home loan where you are only required to put 5 per cent of the total purchase price towards a deposit.

What is LVR in a home loan?

‘LVR’ is an acronym for 'loan-to-value ratio' or 'loan to valuation ratio', which refers to the loan amount you are borrowing, represented as a percentage of the property's value. When a lender looks at how much you want to borrow in your loan application, they will compare their own valuation of the property to how much of a deposit you can put down.

Many standard home loans in Australia have an 80 per cent LVR, meaning they require a 20 per cent deposit. There are other types of home loans available for owner occupiers and investors, including 70 per cent LVR home loans that require a 30 per cent deposit, 90 per cent LVR home loans that require a 10 per cent deposit, and 95 per cent LVR home loans that require a 5 per cent deposit.

For example:

If Leigh wants to buy a new home with a property price of $500,000, but only has $25,000 of savings available as a deposit, then their deposit would cover only 5 per cent of the property's value. To buy the property, they would require a mortgage covering the remaining 95 per cent of the property's value - a 95% LVR home loan.

How low can a low deposit home loan go?

Any mortgage offer with an LVR higher than 80 per cent can generally be considered a low deposit home loan. A 5 per cent deposit may be the lowest deposit you will commonly encounter.

It may still be possible to buy property with a deposit smaller than 5 per cent, though you’ll likely require assistance from a guarantor and/or from government support programs.

Can I buy a property with a 5% deposit?

While most home loans expect a deposit of at least 20 per cent of the property value, it is possible to get a mortgage with just a 5 per cent deposit.

A variety of Australian mortgage lenders offer home loan options for borrowers with smaller deposits, which could allow you to enter the property market sooner and with less savings. These mortgage offers are often called 95 per cent LVR home loans, as you’ll have a Loan-to-Value Ratio of 95 per cent.

It’s important to remember that having a smaller deposit may still mean paying extra costs. Buying a property with a 5 per cent deposit may mean paying more in Lender’s Mortgage Insurance (LMI), and the interest rate you're offered may be higher than if you had a deposit of 20 per cent or more.

However, seeking out assistance from a guarantor and/or from government support programs may be able to help you buy a home with a low deposit without paying too much in extra costs.

What is a guarantor home loan?

Your parents or other relatives may be able to guarantee your home loan with the value of their own property. This may allow you to get a mortgage while paying low or no deposit, and without having to pay for LMI. 

Your guarantor may become responsible for paying your mortgage if you default on your repayments, so it's important that everyone is aware of the risks and responsibilities involved. 

Once you’ve held your mortgage for some time and have had a chance to build up some equity, you may be able to refinance your mortgage and remove the guarantee.

What are the benefits of 95% LVR home loans?

Some of the potential advantages for borrowers taking out a 95 per cent LVR home loan include:

  • Entering the property market quickly: Because you only need a 5 per cent deposit, you can take out a loan and buy a home faster than waiting to save up the standard 20 per cent deposit of genuine savings.
  • Easing short-term financial pressures: If you want to buy a home but saving a lump sum for a deposit isn’t feasible in the short term, a 95 per cent LVR home loan could temporarily relieve some of the financial burden.
  • Taking advantage of low interest rates: You could be able to enter the property market when favourable interest rates are available even if you don’t yet have enough money saved for a standard 20 per cent deposit.

What are the risks of 95% LVR home loans?

There are a few important risks to consider when looking for a mortgage with a 5 per cent deposit:

  • Lender's Mortgage Insurance (LMI): LMI is an insurance policy required by most lenders if a borrower has a deposit of less than 20 per cent. It covers the lender (and not the borrower) if the borrower defaults on their home loan repayments. Most lenders pass on the cost of LMI to the borrower. This can potentially add tens of thousands of dollars to your home loan's upfront costs - the higher the LVR, the more you may need to pay for LMI. 
  • Fewer home loan options: Not every lender offers 95 per cent LVR home loans, as most lenders consider these loans riskier than mortgages with LVRs of 80 per cent or lower. You may have fewer mortgage lenders to choose from if you have a low home loan deposit.
  • Higher interest rates and/or fees: Generally, the higher your LVR, the higher the interest rate and/or fees you may have to pay on your mortgage. This is because lenders often consider these loans riskier than lower LVR mortgages.

Home loan deposit size benefits and risks

 Deposit size

Benefits 

Risks 

20%+

More likely to be approved for a mortgage and be offered a more competitive rate

Avoid paying LMI

May take longer to save up if buying in capital city 
10-15%

Some mortgages are available

Get a foot on the property ladder without waiting years to save for a bigger deposit

Strict lending criteria applies

Borrower will pay LMI

5-10%

Some mortgages may be available

May qualify for First Home Loan Deposit Scheme

Strict lending criteria applies

Borrower will pay LMI (if not on FHLDS)

Higher ongoing repayments

2%If single parent – may qualify for Family Home Guarantee

Only possible through FHG

Strict lending criteria applies

Higher ongoing repayments

0%May be possible with guarantor or using equity in existing property.No 100% LVR home loans on RateCity database if not using guarantor.

What other features should I look for in a 95% LVR home loan?

Home loans with a 95 per cent LVR typically have similar features to other types of home loans, but the associated rates and fees may differ. For example, a lender might choose to offer a lower interest rate to customers who can put down a larger deposit.

Aside from the interest rate and deposit amount, though, here are some of the other common features to consider:

  • Fixed rate or variable rate home loan: You can usually decide whether to lock in an interest rate for a set period or have a variable interest rate. Remember to also check the comparison rate, which indicates the loan's overall cost, including interest and standard fees and charges.
  • Repayment options: Some lenders will allow you to make additional repayments above the minimum, so you can pay off your loan faster and avoid interest.
  • Redraw facility: Some home loans come with the option to redraw additional repayments you’ve made if you need the money down the track.
  • Offset account: You may be able to have a bank account linked to your home loan, known as an ‘offset account’. Your lender attributes your account balance towards your loan so you only have to pay interest on the difference.
  • Loan term: Usually, the term for a home loan is 25-30 years.

What government assistance could I get to gain a first home?

There are also options available to receive additional support when applying for a low deposit home loan, such as:

  • First home owners grants (FHOGs): Eligible first home buyers may be able to apply for a grant to go towards the deposit on their first home. Contact your state or territory government for more information, including the eligibility requirements. 
  • First home loan deposit scheme (FHLDS): This Australian government program from the National Housing Finance and Investment Corporation (NHFIC) allows first home buyers to purchase a property with a mortgage from a participating lender with a deposit of just 5 per cent, without having to pay for LMI. A limited number of scheme places are available each financial year, and both the borrowers and the property being purchased will need to satisfy eligibility criteria, such as property price thresholds. 
  • First Home Super Saver Scheme (FHSSS):This program allows you to make extra contributions to your superannuation fund and withdraw up to $10,000 ($20,000 for couples) of these extra contributions to go towards your home loan deposit.

Can you get a no deposit 100% LVR home loan?

In the past, it was possible to get a 100 per cent LVR home loan, also known as a no deposit home loan. However, ever since the Global Financial Crisis (GFC), no deposit home loans have become much rarer, with most banks and mortgage lenders no longer offering them.

It may still be possible to buy a property while paying no deposit. However, you may need the help of a family guarantor to guarantee your loan with the value of their own equity. Government support programs may also be able to contribute towards your deposit and/or help to guarantee your low deposit loan so you won’t have to pay for LMI.

Can a broker help you get a no deposit home loan?

Whether you’re buying your first home or an investment property, it’s handy to have help available before you enquire about a 95 per cent LVR home loan. 

Mortgage brokers are home loan experts that may be able to help you work out which mortgage lenders offer home loans that may suit your needs, that are available with a 5 per cent deposit. They can also manage your home loan application and help you access grants and other support services to make your buying journey easier. 

You can quickly compare mortgage brokers in your area at RateCity, so you can take advantage of their experience and local knowledge. 

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Fact Checked

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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