Real Estate

Loan-to-value ratios (LVRs): unravelling the ins & outs

Loan-to-value ratios (LVRs): unravelling the ins & outs
Loan-to-value ratios or LVRs are another important property acronym that every home buyer needs to know about. But why are LVRs important and what exactly does the term mean?

What are Loan-to-value ratios (LVRs)?

An LVR is the percentage of a property's value that you need to borrow from a lender. Or, in other words, an LVR figure is a ratio of your potential property's value as compared to the amount you need to borrow ie your home loan figure.

How are Loan-to-value-ratios (LVRs) calculated?

Divide your home loan amount by the property's value, then multiply this figure by 100.

Amount of loan ÷ property value x 100 = LVR Let's say you wish to borrow $280,000 for a property valued at $350,000. Your LVR calculation would then be: $280,000 ÷ $350,000 = 0.80 x 100 = LVR of 80% (NB: Conveyancing, stamp duty and other upfront fees and charges aren’t included in the loan amount for LVR calculations)

Why are LVRs important?

Here's the 411 on LVRs. A higher stake, or deposit, in your potential property, always equals low risk when it comes to lenders and loans. And as a higher deposit equals a lower LVR, lenders always lean toward lower LVRs. So, you should aim for a low LVR too as it will not only reveal your financial risk status and capabilities but also affect the term of your home loan.
Loan-to-value-ratios - what are they?

What is a good LVR figure?

So, is 80% a good LVR figure - and if not, what is? Well, 80% is a great LVR but it isn't brilliant with 80% widely considered to be the LVR "tipping point" for lenders. That being said, every lender has different LVR limits with some going as high as 90%-95%. However, these same lenders - and others too - may require you to pay LMI.

How do I lower my LVR?

Should I use the valuation or purchase price when calculating LVR?

As a rule, lenders will use the lower of these two prices - if they're different - to calculate Loan-to-value-ratios.

We’re here to help

Whatever mortgage road you wish to take, we’d love to help you travel it! We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan. So, give us a call today at Lending Loop.

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