A Safe Borrower to a bank is like a Safe Driver to an insurance company; you are low risk because you have a proven history.
When you are a first homebuyer with no repayment history and a small deposit, probably using the First Home Owners Grant to pay your fees, the bank looks at you like an 18-year-old behind the wheel of a V8: high risk and unproven. If you are a Safe Borrower, the bank sees you as experienced, with a history of accident-free driving.
A new focus – LVR
The LVR, or Loan to Value Ratio, is an important principle to understand when discussing Safe Borrowers.
An LVR of 100% means someone is borrowing 100% of the value of the property, such as a $300,000 loan on a $300,000 house. Similarly, a 50% LVR means a $150,000 loan on a $300,000 house. The 50% LVR is much safer for the lender because, if the borrower has a problem, they can comfortably sell the house for much more than the loan.
Key Point
Interest rates for Safe Borrowers are usually more than 1% lower than the bank’s standard variable rates, cheaper even the bank’s lowest advertised discount and professional package rates. Think of it like the No-Claim Bonus on your car insurance.