What is LVR

LVR is an acronym for the words Loan to Value Ratio. In real terms it is the way the lenders work out the risk you pose to them.

Loan: This is the amount you wish to borrow.

Value: This is the value of the property you wish to buy or refinance.

The loan to value ratio is the loan amount as a percentage of the overall value of the property.

For example if you want a loan of $300,000 to buy a house worth $600,000 (and you have the remaining $300,000 in savings to cover the difference) the loan amount is only 50% of the value of the house. ($300,000 loan divided by $600,000 value times 100 = 50% ).

The loan amount as a percentage shows the risk factor to the bank. Banks are happy to lend up to 80%, but anything over this 80% LVR will incur Lenders Mortgage insurance or LMI.

LMI is an insurance you will pay to protect the lender you borrow from and is worked out depending on the LVR. The higher the LVR over 80%, the higher the LMI component.

Most lenders are happy to lend up to a 90% LVR and others will go up to 95%.

Although LMI can be quite hefty, it may also be cheaper in the long run because you can get into your home sooner (when house prices are cheaper).







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