13 Dec 2021

Loan to Value Ratio: Understanding its Importance

Lenders help applicants accomplish their financial goals. At Mortgage House, our loan specialists have access to tools that help them evaluate all applications thoroughly. Our proprietary tools incorporate several lenders’ ratios including the loan to value ratio.

The purpose of the LVR is to assess the amount of risk a lender inherits with every new loan issued. Lenders place minimum lending limits on mortgages. For example, the minimum loan amount most will lend is $100,000. The minimum LVR they lend is 60%.

Ideally, homebuyers will place a 20% down payment on a home they seek to finance. If they aim to purchase a home with a $500,000 value, placing $100,000 toward the purchase with the lender bodes well for them. This means that the lender only needs to finance an 80% LVR. 

When a lender finances a mortgage with a 90% LVR, it means that the lender is taking on more risk. Lenders will finance an LVR of 100%. The highest LVR some lenders finance is 110%. Financing the latter indicates that the borrower brought collateral or a guarantor into the agreement. Thus, the lender received an additional way to recover potential losses, if necessary. 

Vacant land loans often receive an 80% LVR. Lenders often agree to 70% LVR for construction loans.

Loan to Value Ratio Conclusion

For the lender, the loan to value ratio determines the amount of risk they will accept for funding a loan including vehicle loans. Contact our loan specialists at Mortgage House to obtain more information. You can also use our car loan calculator for free.

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