Loan Valuation Ratio Home Loan
Loan to Valuation Ratio is known as LVR in Australia. In the US or the UK it is referred to as LTV or Loan to Valuation ratio. When taking out a loan, the LVR is used as a benchmark and risk factor used in the decision making of approving loans.
What is Loan to Value Ratio (LVR)?
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 fraction that most of us would have learnt in our early years at school.
How To Calculate LVR?
LVR is calculated using basic fractions. An example of calculating LVR can be found below as follows:
- Property value $400,000,
- Loan amount Required $300,000
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 on in Australia in 2012?
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 you LVR is, the more of that house you own.
Do different LVR’s attract different assessment 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.
See the below example as a guide
|LMI & Base LVR Bands||$0 – $300,000||$300,001 – $500,000||$500,001 – $750,000||$750,001 – $1,000,000||$1,000,001 – $1,500,000|
|80% – 82.99%||0.46%||0.62%||0.99%||0.98%||1.11%|
|83.00 – 85.99%||0.65%||0.91%||1.46%||1.47%||1.63%|
|86.00 – 89.99%||0.88%||1.46%||1.82%||1.93%||2.42%|
|90.00 – 91.99%||1.64%||2.01%||3.30%||3.46%||3.89%|
|92.00 – 93.50%||1.76%||2.12%||3.51%||3.59%||4.05%|
|93.51 – 94.99%||1.95%||2.58%||3.78%||3.96%||4.38%|
|95.00 – 97.00%||2.31%||2.89%||3.93%||3.99%||4.53|
If for instance someone was to borrow $476,500 at 91% LVR, the LMI calculation would be as follows:
$476,500 X 2.01%
Is there a different cost at different LVR’s?
In 2012 some lenders are offering slightly cheaper interest rate discounts 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?
100% LVR home loans are available today. In order to be eligible, one must supply guarantor security as mentioned above using a guarantor home loan. This is the only way to secure a no deposit home loan today in 2012. There are no longer any ‘no deposit home loans’ like the ones provided by some lenders before the GFC in 2008!
At Mortgage Providers, we are familiar 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 call us and discuss your loan scenario direct with us.