What is a Loan to Value Ratio (LVR)?
The Loan to Valuation Ratio (or LVR) as a percentage is the level of debt secured against the value of the property. The LVR is a simple mathematical calculation utilised by lenders when assessing a loan application.
Types of LVR home loans
How do lenders calculate LVR?
LVR is calculated as follows:
Loan Amount Required ÷ Property Value × 100 = LVR
- Loan Amount Required is $300,000,
- Property Value is $400,000
$300,000 ÷ $400,000 = 75% LVR
In the above example, you will find that the LVR is 75%.
Why is LVR important in lending and financing?
When lenders and financiers assess a loan, the LVR will highlight the borrowing ratio as a risk factor. This borrowing ratio shows the level of debt being borrowed against the proposed security. So the higher the LVR, the higher the risk to the lender!
Maximum LVR one can borrow?
There are several different ways to look at maximum LVR in Australia. When looking at a property being used as a stand-alone property, then for a residential secured mortgage, the maximum LVR will be 97%.
If for instance, additional security was given like in the case of a guarantor property, then the maximum LVR could be increased as high as 120%. This is available with several lenders in Australia, and can be done at normal home loan rates with special discounts using a guarantor home loan.
For commercial loans and industrial property, the maximum LVR one can borrow is 82% on a stand-alone security. Please see commercial loans at 80% LVR.
Best LVR for borrowing for a home loan?
There is no rule for best LVR. However, we would like to say that the lower your LVR is, the more of that house you own.
Do different LVR’s attract different assessments by lenders?
As a general rule, if you borrow up to 80% LVR for a residential property then the lenders do not require any mortgage insurance. Once you borrow more than 80% LVR, this puts the loan under mortgage insurance scrutiny and at times calls in slightly harder assessment criteria as the loan ratio is not higher. This is particularly the case over 90% LVR.
Is LMI more expensive at higher LVR’s?
Lender’s Mortgage Insurance is payable when you borrow over 80% LVR. This is universal for most lenders except for 1-2 lenders who can waive the LMI at 85% LVR with No LMI. The cost of the LMI is dependent on the LVR and the loan amount. Different LVR’s attract different LMI charges at different bandwidths.
If for instance someone was to borrow $476,500 at 91% LVR, the LMI calculation would be as follows: $476,500 x 2.01%= $9,577.65
Is there a different cost at different LVR’s?
Some lenders offer a slightly cheaper interest rate discount for LVR’s lower than 80%. Further, a number of lenders waive some application fees or other associated costs with lower LVR loans. This does not mean that you will pay more for a higher LVR, but that some lenders offer some sweeteners for reduced LVR’s.
What is the most common LVR home loan in Australia?
Most first home buyers in Australia tend to borrow between 90% LVR – 97% LVR. Most second home buyers or investors tend to have a bigger deposit and hence they borrow at 80% LVR or lower.
Can I get a 100% LVR home loan today?
Yes, 100% LVR home loans are available. In order to be eligible, one must provide a guarantor as security as mentioned above using a guarantor home loan. This is the only way to secure a no deposit home loan.
At Mortgage Providers, we are experts sourcing loans with different LVR’s and lending ratios. We can explain which lenders offer the best loan terms at different LVR’s with different loan products. We invite you to contact us today!