Refinancing your home loan: Why LVR could be your best bargaining chip
As competition in the home loan market intensifies, some lenders are staying ahead by offering their biggest rate discounts to borrowers with lower loan-to-value ratios (LVRs).
LVR refers to the percentage of property value that is still owed to your lender, so as you pay down your home loan, your LVR should also decrease.
This means that if you’ve been repaying your current mortgage for a few years now, your LVR could give you a significant upper hand when refinancing.
According to Mozo data, if you refinance with a 70% LVR, you could snag average variable rates that are 51 basis points better than a 90% LVR loan.*
That 0.51% rate difference could potentially cut down your monthly repayments by hundreds of dollars, depending on your loan size and term. For instance, for a $400,000 mortgage over 25 years, you could save as much as $107 in repayments per month.
Average variable rates based on LVR
How much property value belongs to you? | LVR | Average variable rate** | Monthly repayments (for $400,000 loan over 25 years) |
---|---|---|---|
5% | 95% | 3.74% | $2,054 |
10% | 90% | 3.30% | $1,960 |
20% | 80% | 2.92% | $1,880 |
30% | 70% | 2.79% | $1,853 |
Just bear in mind that the above averages are based on advertised rates only. However with the exception of a handful of providers like Athena and 86 400, many lenders don’t actually advertise rate tiers below 80% LVR.
That’s when your LVR could become a powerful bargaining chip.
Mozo’s property expert, Steve Jovcevski said that rather than relying on the lender to hand over a more competitive deal, it may be up to the borrower themselves to calculate their LVR and negotiate down their rate accordingly.
“If you have a lower LVR, it’s good for negotiating power because it makes you a higher quality borrower, which means you’re considered lower risk to the bank and would also lower their cost of funding,” Jovcevski said.
“Banks can make a bigger profit margin on those higher quality borrowers when they offer the same rates to a customer with 70% LVR as someone with 80% LVR.
“So even if a lender is advertising a good rate for LVRs up to 80%, it’s important to remember you could get an even better rate than what’s advertised with your 70% LVR.”
How to negotiate your rate
So how do you go about using your LVR to snag a better rate? The first step is doing the maths and getting an estimate of your own LVR:
LVR = loan amount ÷ property value
Your loan amount is the principal you haven’t paid off yet, while to figure out your property value, you can take advantage of a free valuation offered by all the big banks.
Just be mindful that lenders may be more conservative in their own valuations to reduce risk for themselves, so chances are your actual LVR will be higher in the bank’s eyes. To counter this, Jovcevski recommends adding at least 5% on top of your estimated LVR. For instance, if you think your LVR is 65%, assume that the bank will see it as 70% or 75%.
Once you’ve shopped around and found a deal you’re happy with, talk to the lender. Ask whether your lower LVR will make a difference to your rate. And when they’ve done their valuation, it’s worth calculating your LVR again to double check that they’ve offered you the correct rate for your LVR.
RELATED: Why 1% difference in your home loan rate matters
Ready to start your search for a sharper home loan rate today?
Get started with a few competitive deals for refinancers below, or head over to the Mozo refinance home loan hub to compare even more offers.
Compare refinance home loans - rates updated daily
Smart Booster Home Loan
1 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.variable for 12 months and then 2.48% p.a. variable2.47% p.a.Smart Booster Home Loan
A super low introductory rate home loan with no monthly or ongoing fees. Unlimited free redraws and unlimited additional repayments to help you build your equity and own your home sooner. Multiple loan splits available. (Rates revert after introductory period ends). 20% minimum deposit required.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- Optional - with 0.10% additional interest
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $1,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Smart Booster Home Loan
Basic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR 70-80%
interest rate
comparison rate
Initial monthly repayment
2.09% p.a.
fixed 2 years2.56% p.a.Basic Home Loan
Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.
- Ongoing fees
- $0.00
- Discharge Fee
- $400.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $750,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Basic Home Loan
UHomeLoan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.75% p.a.
fixed 3 years2.22% p.a.UHomeLoan
$0 fees and easy application with the Mozo Experts Choice Home Lender Bank of the Year. Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $20,000 p.a.
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $395 Establishment fee waived for fixed rate loans that settle by 31 March 2020. Receive 1.75% 3 year fixed rate when you apply by 29 April 2021 and settle within 90 days.
Read our Mozo Review to learn more about the UHomeLoan
Celebrate Variable Home Loan
<60% LVR, Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
2.19% p.a. variable2.19% p.a.Celebrate Variable Home Loan
Fast online application with no fees. Free extra repayments and redraw facility. Min 40% deposit. Crowned Best New Home Loan for 2020 by the Mozo Experts.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Celebrate Variable Home Loan
Special Fixed Rate Home Loan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.
fixed 4 years3.45% p.a.Special Fixed Rate Home Loan
Great fixed low rate. Ability to split your loan between fixed and variable. Insurance discounts and $0 credit card or personal loan fee available. Free extra repayments (up to $25,000 per year) and free redraw. Enjoy local branches and call centre.
- Ongoing fees
- $395.00 yearly
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $25,000 p.a.
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $5,000
- maximum borrowing amount
- -
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $2,000 cashback when you refinance your home loan from another financial institution when you apply by 31 March 2021 and are funded by 31 May 2021, min $250k, LVR
Read our Mozo Review to learn more about the Special Fixed Rate Home Loan
*Calculations draw on average rates outlined in the table.
**These rates are averages of loans only available at that particular LVR tier. Averages as of 25 September 2020, assuming an owner occupier making principal and loan repayments on a $400k loan.
^See information about the Mozo Experts Choice Home Loans Awards
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