LVR stands for loan-to-value ratio, which 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. It is a key calculation used by lenders to assess the risk of a loan, with a higher LVR representing a higher risk to the lender. 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 you have a deposit of $100,000 and your target property is valued at $500,000, then you’ll need a loan of $400,000, so your LVR is 80%.
Having a smaller deposit may mean you’re charged Lenders Mortgage Insurance or a Low Deposit Premium. If your LVR is greater than 80%, you may need to get Lenders Mortgage Insurance (LMI). LMI protects the lender if the borrower can’t meet their home loan repayments. If this happens, the property securing the loan will need to be sold so that the bank can recover the money it lent.
Some lenders may loan up to 95% of a property’s value as the LVR. However, lenders may impose stricter lending policies for areas or postcodes they consider higher risk, and may cap the LVR on home loans according to the suburb in which a property is located. The LVR that banks will allow you to borrow depends on the home loan amount you need, the location of your property, your credit history, your income and employment history, and the type of loan you’re applying for.
In summary, LVR 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. It is a key calculation used by lenders to assess the risk of a loan, and the lower the LVR, the lower the risk to the bank. Having a smaller deposit may mean you’re charged Lenders Mortgage Insurance or a Low Deposit Premium, and if your LVR is greater than 80%, you may need to get Lenders Mortgage Insurance (LMI).
