What does LVR mean?
As you delve into the world of loans and mortgages, you may come across the abbreviation ‘LVR’. LVR stands for Loan-to-Value Ratio.
The LVR is expressed as a percentage, and is your loan amount divided by the property’s value. It’s important to factor in the LVR when figuring out how much you can borrow to buy a property, how much you need to save for a deposit, and if you meet the criteria for a home loan.
How to calculate LVR
If you are interested in buying a property, you calculate the LVR on it as:
Loan Amount / Property Value = LVR
Say, for example, that you have a deposit of $120,000 and you are looking at a house worth $600,000, which means you would need to borrow $480,000. Dividing this loan amount of $480,000 by the property’s value of $600,000 would give you an LVR of 80%.
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, hence they borrow at 80% LVR or lower.
What is LVR used for?
A lender uses the LVR to calculate their level of risk when they receive a home loan application. The higher your LVR is, the greater your perceived risk is to the lender. While different lenders have different maximum LVRs for varying loan types, they will generally finance home loans up to 80% LVR. If your LVR is above 80%, you will typically be required to pay lenders mortgage insurance (LMI), which is insurance that the lender takes out as protection should you default and be unable to meet repayments.
LVR is an important consideration in lending, so it pays to understand how it is calculated and what it means for you. Seek a Mortgage Providers broker to find out more about LVR and what loan you eligible for.
Enquire online and one of our brokers will be in touch with you.