What You Need to Know About Home Loan Deposits

In the past, you needed to make a 20% deposit when getting a mortgage. So if for example the property costs $300,000, you need to make a deposit of at least $60,000. A lot has changed in the mortgage industry, however. Today, you have a wide variety of options when it comes to deposits, and that is what we will discuss in the following paragraphs. We'll share with you some of the most common arrangements you can make so you can decide which one is best for you.

Loan to Value Ratio

First, let's talk about Loan to Value Ratio or LVR. While this isn't a type of deposit, lenders use this as a gauge of your risk factor as a borrower. The rule of thumb here is that the lower your LVR, the better, as it means you have a high deposit. Going back to the example of the $300,000 property, the 20% deposit gives you an 80% LVR. This is the ideal LVR that you should go for. But what if you don't have enough funds to come up with a 20% deposit? Move on to the next paragraph.

Lenders Mortgage Insurance

Lenders offer the Lenders Mortgage Insurance (LMI) to borrowers with less than the ideal 20% deposit. This is a one-off charge that will be added on top of your loan, or that you will have to settle in advance. Again, lenders want to minimize their risk, and this is one way they can do so. The advantage of an LMI is that it enables you to acquire a property sooner without having to wait until you have saved up enough money for your deposit.

Whether this is your first time to apply for a home loan, or if you are seeking to pay it off sooner, the qualified advisors at Rate Detective are ready to help you. They will look into your needs and budget, so that they can provide you with rate comparisons from the country's top lenders. This ensures that you will find a home loan that is truly tailor-fit for you.

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Published on November 11-th, 2012 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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