What is an LVR?
LVR, or your loan-to-value ratio, is a percentage used by banks and other lenders when they assess your home loan application. LVR compares the amount you borrow against your home’s value. Banks offer better rates to borrowers with a low LVR because they consider these loans low-risk.
Calculation of LVR
Banks and other lenders determine your LVR by dividing the amount of your loan by the property’s price or value. Then they multiply that decimal by 100. For example, you are purchasing a property for $100,000 and you need to borrow $80,000. In this situation, your LVR is 80%.
Each lender has its own requirements for how much LVR an applicant can borrow. The banks consider the amount you borrowed, your property’s location, your credit history, and if you are applying for a full doc or low doc loan.
- If you are applying for a full doc loan, you can borrow up to 100%.
- If you are applying for a low doc loan, you can borrow up to 80%.
- With a guarantor, you may be able to borrow up to 105% of the loan amount.
- If you borrow more than 80%, most banks require lender’s mortgage insurance.
It is important to note that the figures listed above are for standard home loans. Lenders may have different LVR requirements for other loan types, such as investment loans and construction loans.
LVR is one of the crucial factors banks consider when deciding whether to approve a loan application. If you have a high LVR, banks may designate your loan high-risk and deny your loan request. However, Mortgage House can help. Our team of brokers specialises in non-bank lending and can find you a loan that is favourable despite your financial situation.