What is LVR? Loan-to-Value Ratio explained

An inevitability when purchasing a home is encountering the acronym LVR, which means Loan to Value Ratio. But what does this mean?

When you are working out the amount you can borrow to purchase a property, the size of the deposit you need to save, and whether you’re eligible for a particular mortgage product, the LVR is one of the most important things that is considered.

Put simply, 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% of the property’s value, making your LVR 80%.

LVR is important because different lenders and loan types allow for different maximum LVRs and some lenders will only lend up to a certain LVR for small properties or properties in certain areas.

Lenders use LVR to assess the risk of a loan. The higher the LVR, the higher the risk to the lender. It’s important to note that if you have an LVR of more than 80%, you may need to pay Lender’s Mortgage Insurance.

Keep in mind that the more you borrow and the higher the LVR, the more interest you’ll likely have to pay. If you need help determining your LVR, cutting through any other finance talk or some guidance with the loan process, reach out to your local MoneyQuest finance specialist today.

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