The mortgage industry has a language all of its own. One of the many acronyms thrown about is ‘LVR’, which stands for ‘Loan-to-valuation Ratio’. Let me explain…
When you are working out how much you can borrow to purchase a property, the size of deposit you need to save and whether you are eligible for a particular mortgage product, the loan-to-valuation ratio (LVR) is one of the key factors to consider.
To put it simply, the LVR is the percentage of the property’s value, as assessed by the lender, that your loan equates to. So, if the property you want to purchase is valued at $500,000, and you need to borrow $400,000 to pay for it, the loan is 80 per cent of the property value, making your LVR 80 per cent. This is calculated as follows:
Loan Amount ($400k) ÷ Property Value ($500k) = (0.80) x 100 = 80%
LVR is important because different lenders and loan types have different maximum LVRs, and some lenders will only lend up to a certain LVR for small properties or properties in certain postcodes.
Most lenders will finance 80% LVR, or higher with lenders’ mortgage insurance (LMI), while alt doc loans may be limited to 60 per cent LVR without LMI.
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