How our LVR calculator can help
There are four good reasons why it pays to know your loan to value ratio.
1. Lenders set maximum LVR limits
Lenders each have their own limits on the maximum loan to value ratio a home buyer can have.
Some have a maximum LVR of 90%. This means you need at least a 10% deposit to be eligible for a home loan.
Others have a maximum loan to value ratio of 95%, meaning you could secure a home loan with as little as a 5% deposit.
2. Your LVR will determine whether you pay LMI
Your loan to value ratio will be a big decider in whether or not you pay lenders mortgage insurance.
If the loan to value ratio is more than 80%, meaning you have a deposit of less than 20%, the lender will ask you to pay LMI. It’s a cost that can run into thousands of dollars, which is why home buyers often aim for a 20% deposit.
3. A Low LVR can see you rewarded with lower rates
The lower the loan to value ratio, the less risk you pose to the lender. Some lenders will reward you for having a larger deposit with lower interest rates, higher ongoing discounts and better package deals.
4. A high LVR means a bigger loan
Having a high loan to value ratio means you’re borrowing a lot more of your home’s value. That can leave you vulnerable to rising interest rates.
What to watch for with a loan to value ratio calculator
When you apply for a home loan the lender will usually organise their own valuation of the property.
A valuer will take into account:
- The size of your home as well as the size of the block of land
- The type of property – for example, whether it’s a freestanding house, semi or apartment
- The location of the property, and
- The condition of the home.
If the lender’s valuation is less than the price you paid for the property, your loan to value ratio will change. This may mean you need to provide a bigger deposit to bring the LVR back down to a level the lender is comfortable with.