The mortgage industry is a complex and mysterious world with a language all of its own. If you don’t work within the finance industry trying to understand many of the terminologies can seem overwhelming.
One of the many acronyms bandied about is ‘LVR’, which stands for ‘loan-to-valuation ratio’.
Here’s what it means.
When you are working out what amount 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 most important considerations.
Basically the LVR is the percentage of the property’s value, as assessed by the lender, that your loan equates to.
How to work out your LVR.
For example – 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.
Do all lenders treat LVR the same?
No, 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 a certain area.
Most lenders will finance 80 per cent LVR, or higher with Lenders’ Mortgage Insurance (LMI), which is an insurance that protects the lender not the borrower.
It’s also important to note that when it comes to Alternative Doc Loans which are often used to borrow by those who are self-employed due to full financials not being able to be supplied there could be a limit to 60 per cent LVR without LMI.
Hopefully you now have a better understand of what the terminology ‘loan-to-valuation ratio’ (LVR) refers to.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.