What is LVR for home loans?
LVR stands for Loan-to-Value Ratio. It is a percentage that compares the amount you are borrowing to the value of the property you are purchasing. It sounds simple right!
How is LVR calculated?
LVR is calculated by dividing the loan amount by the property’s value and the multiplying by 100. For example – if you’re buying a property worth $600,000 and borrowing $480,000, your LVR would be (480,000 divided by 600,000) x 100 =80&.
Why is this important?
Lenders use LVR to assess the risk of your loan. A lower LVR generally means less risk for the lender, which can lead to a more competitiveinterest rates and better loan options.
But, on the flip side, a higher LVR (usually over 80%) can result in you having to pay Lenders Mortgage Insurance (LMI). This is a one-offfee that protects the lender if you default on the loan. LMT can cost thousandsof dollars, so avoiding it if possible is recommended as it can lead to significant savings.
Final thoughts
Understanding LVR can help you plan your deposit, assist in comparing loan options and avoid unnecessary costs. Whether you are buying your first home or an investment property, aiming for a lower LVR can give yougreater financial flexibility and assist with your long-term savings planning.
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