What is a 90% LVR home loan?
A 90% LVR home loan is one where the loan-to-value ratio (LVR) is 90%. That is, the buyer will put down a 10% deposit and borrow 90% of the price of the home.
Do you need to pay Lenders Mortgage Insurance (LMI) with a 90% LVR?
Yes, you will generally need to pay Lenders Mortgage Insurance (LMI) with a 90% LVR. Typically, a 20% deposit is the threshold required to avoid LMI.
LMI protects the lender from financial loss if the buyer fails to repay their loan. The buyer is responsible for paying for the policy when they take out their home loan.
LMI can run into the thousands, or even tens of thousands of dollars. Additionally, because the cost of LMI is generally rolled into a mortgage, you might end up paying interest on that expense too.
How to avoid LMI if you have a 90% LVR
There are a handful ways you might be able to avoid LMI, even with a 90% LVR:
- 5% Deposit Scheme: The Australian Government’s 5% Deposit Scheme could help you to bypass LMI with a deposit of less than 20%, provided you’re a first home buyer or single parent, meet other eligibility conditions, and borrow from an approved lender.
- Guarantor loan: Having someone to act as guarantor on your home loan could help to offset the risk assumed by the lender. In turn, you could avoid paying LMI.
- LMI waivers: Some banks, like Westpac, ANZ, and NAB may offer LMI waivers to specific professions. Additionally, some lenders don’t charge LMI to borrowers with deposits of 10% or more, so it can pay to explore your options.
How to compare 90% LVR home loans
Many lenders offer mortgages to borrowers who will have a 90% LVR. The table at the top of this page can help you compare rates on home loans available to borrowers with up to 90% LVRs from our online partners.
What to know about 90% LVR home loans
What’s a good 90% LVR interest rate?
A 90% LVR is generally considered riskier than one of, say, 80% or less, because the bank has more to lose.
If you default on your loan, your lender will move to recover its losses by repossessing the property and selling it. If you’ve borrowed 90% of the property’s value and house prices fall by 10% or more, the lender could find itself in the red after the sale.
Thus, a 90% LVR brings more risk, and interest rates are typically higher to account for that.
You can sort the table above by lowest interest rate to gauge rates currently available to borrowers with 90% LVRs.
Look at comparison rates too
But be wary of what appears to be an ultra-competitive interest rate. On paper, a low-rate home loan may sound enticing, but it could be masking hidden fees.
Be sure to compare the ‘comparison rates’ on each home loan product, which accounts for both repayments and fees and charges. That way, you’re looking at the ‘real cost’ of a mortgage.
What should I consider when comparing 90% LVR Home Loans?
The best mortgage for you likely won’t be strictly based on the lowest interest rate. When weighing your options, you should think deeply about your financial circumstances and the mortgage features that could best fit your situation.
Here are some questions you should ask yourself:
How long do I want to spend repaying my home loan?
- A longer loan term may mean lower regular repayments
- A shorter term can lessen 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. These function similarly to savings accounts, however, instead of paying interest on money deposited within, they work to effectively lessen the balance that home loan interest is charged on.
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.
This can offer increased certainty, but pricey break fees can apply if you refinance or sell your property before a fixed term ends.
Do I need extra flexibility from my home loan lender?
Some lenders could allow you to ‘tweak’ your mortgage without having to refinance:
- A top-up feature may let you borrow more against your equity down the line without having to submit a new application
- If you plan to move, home loan portability lets you keep your home loan even if you’re moving to a new property
Keep in mind that these features are not available on all home loans.
Is a 90% LVR home loan worth it?
Whether or not a 90% LVR home loan is worth it will depend on your personal situation.
Here’s a list of pros and cons to weigh up before making a decision:
90% LVR home loan pros
- Buying a property sooner: If you can raise a 10% deposit, taking on a 90% LVR loan may mean you can get onto the property ladder sooner.
- Loan repayments may be lower than rent: In some cases, your repayments could cost less than what you’re paying in rent (keep in mind that rent costs are generally fixed year-to-year, but the value of repayments could change with a few weeks’ notice).
- Building up equity: When you’re paying off the balance of your home loan, you’re likely building up equity in your home. This can help strengthen your financial position and, down the track, you may be able to borrow against that equity.
90% LVR home loan cons
- Considered a higher risk: Low-deposit mortgages, such as 90% LVR home loans, are typically considered higher risk than loans taken out with a larger deposit. Applicants may have to meet stricter conditions or pay higher rates than borrowers with larger deposits.
- Extra fees and more interest: Putting down a smaller deposit could see you subject to LMI and, since you'll be taking on more debt, you might pay more interest over the life of your loan than if you had a larger deposit.
- Increased risk of negative equity: With a 10% deposit, there’s a higher risk of negative equity. Negative equity is when you’re left owing more on your mortgage than your home’s actually worth. If the property market drops by 10% before you've paid down your principal, you could hit this threshold. Consequently, if you are forced to sell during a market downturn, the sale proceeds might not cover your outstanding loan balance, leaving you with no home and a debt.
