What is an 85% LVR home loan?
An 85% loan-to-value ratio (LVR) home loan is one where you as a homebuyer or refinancer must provide a deposit or equity worth at least 15% of your property’s value, in order to borrow the remaining 85%. Therefore, you end up with a mortgage that represents 85% of your property’s worth.
What to know about 85% LVR home loans
It’s commonly said that you need a 20% deposit to get a home loan, meaning an LVR of 80%. So where does this leave you if you have a 15% deposit, and want a home loan with an LVR of 85%?
Don’t fret. These days, banks and lenders are flexible when it comes to the size of your deposit. Most will provide home loans to borrowers with deposits as low as 5%.
Be warned though, the higher the LVR, the higher the interest rate you may pay. If you’re hoping to borrow with a deposit of 15%, you can likely still be approved for a home loan, but you probably won’t have access to a lender’s sharpest rates.
Do you need to pay Lenders Mortgage Insurance (LMI) with an 85% LVR?
There’s one major reason many homebuyers, investors, and refinancers still aim for LVRs of 80% or less, and that is Lenders Mortgage Insurance (LMI).
LMI is a one-off fee paid by borrowers when taking out a home loan that covers the cost of speciality insurance that protects lenders against losses in the event you default. It’s a form of financial safety net for the lender, meaning that, if you can’t repay your debt and your lender can’t recoup all its money by selling your property, it still won’t end up out of pocket.
Most lenders will ask a borrower with a deposit of less than 20% (meaning an LVR of more than 80%) to pay for LMI, because they view these mortgages as riskier. If you’re borrowing with an LVR of 85%, then it’s likely you’ll need to pay it.
From a borrower’s perspective, there are some key facts to know about LMI:
- It can be expensive, running into thousands or even tens of thousands of dollars.
- It can be paid upfront or rolled into the cost of your home loan. But if you opt for the latter, you’ll pay interest on it over the lifetime of the loan.
- It’s not refundable, even if you refinance your home loan or pay it off early (with some exceptions if you pay your loan off entirely within a few years).
- Lenders require it because it protects them; LMI does not offer any protection for you as a borrower.
Can you get LMI waived?
If you’re hoping to borrow with a deposit of 15% and worried about costly LMI, don’t despair. A number of Australian banks and lenders will waive LMI requirements, but the catch is that they’ll only do so if you work in certain professions.
Professions that can access LMI waivers typically include:
- Medical professionals (doctors, dentists, allied health, vets)
- Legal professionals (lawyers and barristers)
- Financial professionals (accountants and actuaries)
- Emergency services workers
- Nurses
It’s also worth noting that some lenders skip LMI entirely. For instance, ubank doesn’t enforce LMI for borrowers with LVRs as high as 90%.
Meanwhile, first home buyers and single parents might be able to dodge the cost by utilising the 5% Deposit Scheme. Having a home loan guarantor could also help you avoid LMI.
How to compare 85% LVR home loans
Comparing 85% LVR home loans is straightforward with Canstar. Just scroll to the top of this page, select your loan purpose, and follow the prompts. We’ll present a selection of mortgage products that might fit your needs.
Alternatively, you can browse products open to borrowers with LVRs of 85% on the table above.
What’s a good 85% LVR interest rate?
Interest rates on 85% LVR home loans tend to be slightly higher than the average on the market.
They might not be as low as those offered to borrowers with LVRs of 80% or less, but they’re also generally lower than rates on 90% or 95% LVR home loans.
Pay close attention to the comparison rate
When weighing up home loans, it’s vital to take a look at the comparison rate to avoid any nasty surprises.
A low-rate mortgage may seem appealing at first glance, but the advertised interest rate is just one part of the picture–when you consider fees and charges, the price might end up much higher than you bargained for.
The comparison rate of a loan exists to give you a picture of the ‘true cost’ of a mortgage. It combines the cost of interest as well as fees and charges, and lenders are legally required to display it alongside any advertised home loan interest rate.
What else should I consider when comparing mortgage options?
The ‘best’ home loan for your needs might not be the one that offers the lowest interest rate. If you’re comparing your options, it’s important to keep in mind that there’s no one-size-fits-all home loan, so the ‘best’ opinion for you will be one that has the features and flexibility you need at a price that suits your budget and lifestyle. Questions you might ask yourself include:
- How long do I want to spend repaying my home loan?
A longer loan term may mean lower regular repayments, whereas a shorter one can mean higher regular payments but lower overall interest costs. - Do I plan to make extra repayments?
If you want to pay more towards your mortgage each week, fortnight, or month, or make lump sum repayments down the track, you might want a home loan with a redraw facility. These let you ‘redraw’ extra repayments if you find yourself in need of cash. - Would I like the option to reduce interest costs using my cash savings?
Some home loans provide offset accounts, which act like savings accounts. These don’t pay interest to you like standard savings accounts–instead they ‘offset’ the balance you still owe on your home loans, reducing the amount of interest you’ll need to pay. - Would I prefer repayment certainty or flexibility?
Variable rates can change over time, meaning a home loan’s repayments can rise and fall, while fixed rates will remain the same for a set period of time, offering certainty. A split rate can allow you to have a foot in each camp. - Do I need extra flexibility from my home loan lender?
Some lenders may allow a borrower to ‘tweak’ their mortgage without the need to refinance. For instance, a top-up feature may let you borrow against your equity in the future without a whole new application. Or, if you plan to move soon, home loan portability could let you transfer your existing loan to a new property.
Am I eligible for an 85% LVR home loan?
When considering your eligibility for a home loan, lenders will try to get a picture of your finances and assess how trustworthy you are as a borrower. This means they’ll ask to see documents like payslips, bank and credit card statements, and tax returns. They’ll also ask for details of any assets you hold or debts you’re currently paying off, and they’ll check your credit score.
Generally, if you can show you’re capable of repaying a home loan and you’re responsible with your finances, you have a good chance of securing a mortgage.
That said, if you want to access a home loan with a maximum LVR of 85%, you’ll also need to have a deposit or equity worth at least 15% of the value of the property you want to purchase or refinance (or have someone willing to act as a home loan guarantor).
How to calculate your home loan LVR
Wondering what your potential or actual LVR is? To calculate yours, simply take the amount you’d need to borrow to purchase or refinance a property and divide it by the value of that property, then multiply the result by 100.
Say you have a $90,000 deposit and want to buy a $600,000 property, you’d probably need to borrow $510,000 to get the purchase across the line. Here’s how you’d calculate the LVR:
Loan amount ($510,000) ÷ property value ($600,000) = 0.85
0.85 x 100 = 85% LVR
Can I refinance with an LVR of 85%?
If you already have a home loan, you can likely refinance with an LVR of 85% but, keep in mind, if you opt to do this, you’ll generally need to pay Lenders Mortgage Insurance (LMI) with your new bank.
This is still the case even if you’ve already paid it to your existing lender. LMI can wipe out any savings realised by switching to a lower interest rate, so it’s worth considering carefully if you want to refinance with an LVR of more than 80% (the ‘magic number’ at which you probably won’t be asked to pay LMI).
Which lenders offer 85% LVR home loans?
The vast majority of banks and non-bank lenders in Australia offer home loans to borrowers with LVRs of 85% or less but, at this level, you will likely be required to pay LMI.
You can compare a range of 85% LVR options in the comparison table above.
