How your Loan-to-Value Ratio impacts what you pay

In the competitive world of home loans, your Loan-to-Value Ratio (LVR) is more than just a number – it's a key to potentially better refinancing deals.

Let's break this down in a way that makes sense to everyone.

Firstly, what is LVR?

It's the comparison of your loan amount to the value of your property, expressed as a percentage.
LVR = Loan Balance / Property Value Example: $600,000 (loan balance) / $800,000 (Property Value) = 75% LVR

Think of it as a balance scale, where one side holds the value of your home and the other the amount you owe on your mortgage.

Key points to remember about LVR

• Property Value Increases: When the value of your property goes up, your LVR improves (percentage gets smaller) as the property's value becomes a larger portion of the equation compared to the loan amount.
• Loan Balance Reduction: Similarly, as you pay down your home loan, your LVR also gets better. This is due to the loan amount becoming a smaller piece of the ratio in relation to the value of your property.
• LVR as a Percentage: LVR is always represented as a percentage. A lower percentage indicates a better LVR. For example, an LVR of 60% is more favourable than an LVR of 80%.
• Increasing Home Equity: A lowering LVR signifies an increase in the equity of your home. As your LVR decreases, it means you own a larger portion of your property outright, relative to what you owe.

Why Does LVR Matter in Refinancing?

Lenders value lower risk.

A lower LVR indicates that you own more of your property compared to what you owe. In the viewpoint of the lender, this makes you a safer bet, like a player with a powerful hand in a card game. The more solid you appear, the more likely lenders will grant you favourable refinancing terms.

The Bargaining Chip of a Lower LVR

Imagine you've been chipping away at your mortgage, reducing your LVR - this diligence can pay off when refinancing.

For example, data suggests that moving from a 90% LVR to a 70% LVR could shave 0.35% off your rate.

What does this mean in real terms?

On a $400,000 loan over 25 years, it translates to saving around $26,000 over the life of a loan.

Shopping Around Pays Off

With lower LVRs, the refinancing market becomes your oyster.

You'll find a variety of competitive rates for different LVR levels (like 60%, 70%, and 80%), opening doors to deals that can significantly reduce your monthly repayments.

That’s where Craggle can support you refinance with the market offers or renegotiate with your current lender to secure the best possible deal.

In Summary

Lowering your LVR not only gives you a sense of progress in your home loan journey but also positions you favourably for refinancing.

With a lower LVR, you’re more likely to access lower interest rates, leading to substantial savings over time.

It's a powerful reminder of the value of reducing your home loan balance and the opportunities it unlocks in the refinancing market.

Disclaimer: Unless otherwise specified, the opinions expressed in this article are strictly for general informational and entertainment purposes only and should not be taken as financial advice or recommendation. Views are subject to change without notice at any time.