Loan to value ratio (LVR) determines refinance approval odds with lenders, including mortgage broker , for borrowers. Simply put, LVR is the property value against the deposit amount. At maximum, lenders typically do not want a refinance a loan when a borrower has more than 80% LVR. Elevated risk is posed to the lender when the LVR a borrower has is greater than 80%, but refinancing may still be possible at a higher LVR if the borrower has a Lender’s Mortgage Insurance (LMI) and other considerations listed below.
Equity. Before a borrower even considers refinancing, they must ensure that they have at least 20% of equity paid into their home. Any less equity in their home may be immediate grounds for denying a borrower to refinance.
Credit score. Even if the borrower has an adequate deposit amount and the minimum equity required to support their refinancing, a bad credit score may prevent it. Contrarily, if credit history is pulled during the refinancing application process and the borrowers credit score has improved since the settlement, the borrower may qualify for better rates and terms to help them save money.
Increase deposit amount. A borrower cannot change the equity in their home or credit score overnight, but with additional discretionary funds or savings, increasing the deposit amount will decrease the LVR, and lenders may make more considerations towards approving the loan with an increased deposit amount.
Dollar-for-dollar. Lenders are currently extremely competitive for dollar-for-dollar refinancing opportunities from borrowers. Borrowers are encouraged to explore refinancing terms and rates and present the quotes to competitors. Serious borrowers tend to get more attention from lenders when they competitively price match for dollar-for-dollar refinancing rates. As long as the offer is not promotional or introductory, lenders may negotiate better terms with the borrower, despite having high LVR.