If you’re planning to buy a home or refinance your mortgage, you’ve probably heard about Loan to Value Ratio (LVR) — but what does it really mean, and why is it important?
LVR is the percentage of the property’s value that you’re borrowing as a loan. It’s calculated like this:
LVR = (Loan Amount ÷ Property Value) × 100
Why does LVR matter?
- Higher LVR means higher risk for lenders: The smaller your deposit, the higher your LVR, and lenders may see this as riskier.
- Lenders Mortgage Insurance (LMI): If your LVR is above 80%, you’ll typically need to pay LMI, which protects the lender if you default.
- Better interest rates with lower LVR: A lower LVR often means you can access better interest rates and loan features.
How can you manage your LVR?
- Save for a bigger deposit: This reduces your LVR and can save you thousands in LMI and interest.
- Consider property value carefully: Accurate valuations and choosing properties within your budget keep your LVR manageable.
- Ask about LMI options: Some lenders offer flexible LMI terms or allow you to add it to your loan.
At The Loan Room, we help you understand your LVR and find loan options that suit your deposit size and goals.
Book an appointment with our team to learn more.