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Loan to Value Ratio (LVR) Calculator

Discover why the loan to value ratio matters, and use our LVR calculator to work out your borrowing ratio.


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‘LVR’ meaning - What is ‘LVR’?

The term LVR stands for ‘loan to value ratio’. It shows the value of your home loan as a percentage of the property’s value.

The LVR is calculated by dividing the loan by the property’s value. In this case that’s $480,000/$600,000, which makes the loan to value ratio 80%.

For example, if you’re buying an apartment costing $600,000, and you have a deposit of $120,000, you will need a loan for $480,000.

The good rule of thumb is that the bigger your deposit, the lower the loan to value ratio will be.

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.

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LVR FAQs

When calculating LVR, your lender will use the amount of money you intend to borrow and divide it by the value of your property (either the purchase price or a price determined by their assessors).

For example - If you want to purchase a $400,000 house and you have a deposit of $40,000, to determine your LVR, the bank would use the following calculation:

  • $400,000 -$40,000 = $360,000 (your loan amount)
  • then divide $360,000 by $400,000, to get a LVR of 90%

If your LVR is over 80%, you will be required to pay Lenders Mortgage Insurance (LMI).

Your LVR is calculated slightly differently when you are looking to refinance.

This is because the price you paid for your house may now differ from its current market value. Your bank will assess the current value of your home to calculate the refinancing LVR.

When calculating LVR, your bank will take into account many factors when assessing the value of your property.

These will include factors such as house size, property size, any improvements you've made to the property, location, building condition, your local council and any new developments that are likely to occur.

Ideally you'll want a low LVR. A low LVR means that you are a much lower risk for a lender. This is because you have a proven history of savings (through a large deposit) and a lender can therefore be more confident in lending you money.

And if your LVR is lower than 80%, it's likely that you will not need to pay for Lenders Mortgage Insurance (LMI), which protects the lender rather than the borrower and adds to the cost of buying your property.

On the flipside - when you have a high LVR, the bank may class you as 'high risk' which could result in you needing LMI or a guarantor.

High risk LVR is generally considered as anything over 80% of the property value. Without at least a 20% deposit, banks may see a high level of risk in lending you money, and consequently you may need to get Lenders Mortgage Insurance (LMI) or have someone act as a guarantor for your loan.

LMI protects the lender (not the borrower) and minimises the lender's risk when they invest in you.

Similarly, a lender may accept a guarantor (parent or relative) as a security if you have a high LVR, which could help you to avoid LMI. The guarantor is responsible for covering loan repayments if you have any issues in making the repayments yourself.

LVR or Loan-to-Value Ratio is the amount you are borrowing, represented as a percentage of the value of the property being used as security for the loan.

Lenders place a significant emphasis on the LVR when assessing your loan application. The lower the LVR, the lower the lender's risk.

As such, if you have an LVR that is 80% or lower, your lender may offer you a home loan that has a more attractive interest rate than a person with an LVR of 80% or above.

As a general rule of thumb, the lower your LVR and the greater the dollar amount you are borrowing, t the greater the interest rate discount for which you may be eligible.

In addition, if your LVR is 80% or under, you will be able to avoid paying costly Lenders Mortgage Insurance (LMI).

Each bank has their own internal policies regarding maximum LVR. Additionally, several factors can impact the maximum LVR for your property:

  • Size of property: Spaces of under 40 square metres in living area are not eligible for Lenders Mortgage Insurance (LMI), so a bank is likely to set a maximum LVR of 80%.
  • Property density: A lender and their insurer have a maximum number of individual properties in any one block that they will insure. This means that if you are looking to buy in a large density block with many units, you may not be able to get LMI and the bank may set a maximum LVR.
  • Property location: Large rural properties may have their maximum LVR limited dependent on the size of the block. Additionally, if the block is intended as a source of income or commercial property, a lender may only let you borrow up to 60% of the property's value.
  • Property value: The higher the property cost, the lower the maximum LVR.
  • Heritage listed property: A lender may reduce the maximum LVR depending on any restrictions on property in regard to use and renovations.
  • Low doc: These are generally assessed on a case-by-case basis, however low doc home loans will carry a lower maximum LVR.

If you think any of these situations may apply to you, contact one of our Mortgage Choice home loan experts to discuss your individual situation.

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What is LMI?

Lenders' Mortgage Insurance, or LMI, is insurance that protects the lender, not you. It’s usually a one-off payment made by the borrower at the time of loan settlement.

Want to find out more? Watch this quick video.

Lenders Mortgage Insurance

The results from these calculators are an approximate guide only and do not constitute specialist advice. The calculations used should not be relied upon for the purposes of entering into any legal or financial commitments.

Disclaimer - Borrowing power: The borrowing amount is a guide only. Loan repayments are based on the lowest interest rate (either standard variable or 3-year fixed rate, owner occupier) from our lender panel over a repayment period of 30 years. Rates and repayments are indicative only and subject to change. The results from this calculator are an approximate guide only and do not constitute specialist advice. The calculations used should not be relied upon for the purposes of entering into any legal or financial commitments.

Disclaimer - Loan Repayments: The lowest interest rate from our lender panel is either standard variable or 3-year fixed for an owner-occupier. Rates and repayments are indicative only and subject to change. The results from this calculator are an approximate guide only and do not constitute specialist advice. The calculations used should not be relied upon for the purposes of entering into any legal or financial commitments.

 

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