Saving for Your Home Deposit
Saving for a deposit is an important step in your journey towards buying your first home. By maintaining a consistent savings plan, you will reach your initial deposit faster and also improve your chances of securing more favourable terms on your home loan. The size of your deposit will also impact your Loan-to-Value Ratio ( LVR), influencing your borrowing options, interest rates, and the potential requirement for lenders mortgage insurance (LMI)
Loan to Value Ratio ( LVR )
LVR is the size of your home loan expressed as a percentage of your property value. So, if you borrow $640,000 to buy a $800,000 property, your LVR would be 80%, and you would have saved 20% deposit.
When your LVR is more than 80%, you are required to pay Lenders Mortgage Insurance ( LMI ) as part of your home loan.
Lenders Mortgage Insurance ( LMI )
LMI is an insurance that safeguards the lender in case the borrower can't repay their home loan. The LMI premium is charged when a borrower's Loan-to-Value ratio exceeds 80%, indicating they are borrowing over 80% of the property's value. The borrower can pay the LMI premium either as a one-time upfront payment or as part of the loan repayment.
The LMI premium is calculated based on your LVR; the higher the LVR, the greater the LMI premium.
There are ways to avoid paying Lenders Mortgage Insurance if you don't have 20% deposit, such as seeking support from the government home buying schemes or using a guarantor.