It’s commonly known that the bigger your deposit, the smaller your home loan, and thus, the lower your monthly repayments. But today we’ll look into another way your deposit size could reduce your repayments: by potentially reducing your interest rate.
A question we’re commonly asked (believe it or not!) is “how can I get a lower interest rate?”
There’s no straightforward answer to this one as it usually depends on a myriad of factors, including whether lenders see you as high risk or low risk, the competition in the market at the time and, as we’ll discuss today, how big your deposit is – or more technically, your ‘loan to value’ (LVR) ratio.
What’s LVR?To cut through the jargon, LVR refers to how much of your home’s value you’re borrowing.
If you plan to buy a home priced at, say, $600,000 using a deposit of $120,000, you’ll need to borrow $480,000, or 80% of the property’s value. For lenders, this means you have an LVR of 80%.