LVR stands for loan-to-value ratio, which is a measure used by lenders to assess the risk of a loan. It is a percentage figure that compares how much a lender is willing to loan you against the total value of the asset you plan to buy. The LVR is calculated by dividing the loan amount by the purchase price or valuation of the property youre buying, expressed as a percentage. For example, if the bank values the property at $500,000 and you've saved a deposit of $100,000, or 20% of the property’s value, you'll need to borrow the other $400,000, or 80% of the property’s value, giving you an LVR of 80% .
A higher LVR represents a higher risk to the lender, and having an LVR of 80% or lower may help you borrow more at lower rates and with lower repayments. However, if you have an LVR of more than 80%, you may need to pay Lender’s Mortgage Insurance or ask a family member to act as a guarantor to offset the risk. Additionally, prospective borrowers with a high LVR may face higher interest rates and fees, reflecting the increased risk taken on by the lender. It's important for borrowers to carefully evaluate their financial situation and consider the implications of a high LVR before committing to a loan.
