Loan to Value Ratio (LVR)

There can be a lot of confusing terms floating about when it comes to home loans, and LVR is just one of them. Here we’ll explain what it is, why you need to know about LVR and how you can reduce your LVR.

What is Loan to Value Ratio (LVR)?

Loan to Value Ratio, or more commonly known as LVR, signifies what portion of the total value of a property a person is borrowing.

For example, if you are buying a property worth $200,000 and have a $50,000 deposit, then your LVR is 75% because you are borrowing 75% of the value of the property.

A borrower’s LVR is hugely important to lenders. It can impact the rate you’ll qualify for as well as the amount a lender is willing to lend you. Borrower’s with a lower LVR are viewed as lower risk by lenders.

How is Loan to Value Ratio (LVR) calculated?

LVR is calculated by dividing your loan amount by the value of the property, then multiplying by 100.

Loan to Value Ratio (LVR) formula:(Loan amount / Value of property) x 100 = LVR

For example, if you took out a $500,000 loan for a house worth $600,000, then your LVR would be $500,000 divided by $600,000 which is 83%.

Is it better to have a lower or higher LVR?

It’s always better to have a lower LVR. Borrowers with a low LVR are in less debt and are considered low risk by lenders.

Low on a deposit? We could have the home loan for you.

Why is Loan to Value Ratio (LVR) important?

Lenders assess a number of things when considering a home loan application and a borrower’s LVR is just one of them. Lenders evaluate LVR before approving a home loan in order to determine the amount of risk involved.

If your LVR is high (greater than 80%), the loan may be considered higher risk. Generally, the lower your LVR, the more equity you hold in the property and the better your likelihood of being offered a lower interest rate.

If your deposit is less than 20% of the assessed value of the property, your LVR will be greater than 80%, and your lender may require you to pay Lenders Mortgage Insurance (LMI) in order to have your loan approved.

Find out how to avoid paying Lenders Mortgage Insurance here.

Can I get a home loan if I have over 80% LVR?

Yes, there are lots of lenders that offer loans to borrowers with high LVR. Of course this all depends on your lender as well as your specific financial situation, employment history and credit rating.

It is important to note that since your deposit is less than 20% of the property purchase price your lender may still require you to pay Lenders Mortgage Insurance on top of your loan repayments.

How can I lower my LVR to less than 80%?

A low LVR can have many benefits including avoiding paying LMI and potentially accessing better interest rates. There are a number of ways you can lower your LVR including:

  • The first way to lower your LVR is to simply wait and try to save a larger deposit

  • Another option is to buy a property with a lower purchase price

  • Ask a guarantor, usually a parent, to use some of the equity in their own home to secure part of your loan. Chat to a Home Loan Specialist to discuss this option further

  • If you want to avoid paying LMI, check if your profession is considered low risk. Some lenders consider professions, such as doctors, engineers and accountants, as low risk and will sometimes waive the LMI fee for these applicants.

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

It depends. If the purchase price is lower than that of the valuation, the lenders will often choose the lower of the two in order to determine the loan to value ratio. This is a common occurrence in off the plan purchases, where the contract was signed before the value of the property increased.

This can also happen when a property is purchased from a family member at a discounted price, also known as favourable purchasing. It’s worth noting that some lenders will use the value of the property for instead of the purchase price in favourable purchases. The borrower will still need to pay stamp duty on the value of the property.

Important legal stuff
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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
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