Understanding LVR (Loan-to-Value Ratio)

What is LVR?

LVR stands for Loan-to-Value Ratio. It's a way of expressing the size of your loan as a percentage of the property's value. For example, if you're borrowing $400,000 to purchase a $500,000 property, your LVR would be 80%.

Why does LVR matter?

LVR is one of the key factors lenders consider when assessing a home loan application. Generally speaking:

• Lower LVR (e.g., below 80%): May give you access to more competitive interest rates and avoids the need for Lenders Mortgage Insurance (LMI).
• Higher LVR (e.g., above 80%): Lenders typically require you to pay LMI, which protects the lender (not you) in case you default. The cost of LMI can be significant.

What is LMI?

Lenders Mortgage Insurance is a one-off insurance premium that protects the lender if a borrower defaults on their loan. It's generally required when borrowing more than 80% of the property's value. LMI can be paid upfront or, in some cases, added to the loan balance.

How to lower your LVR

The most common way to reduce your LVR is to save a larger deposit. Other strategies may include receiving a genuine savings gift from a family member, using a guarantor arrangement, or exploring government schemes that may be available to eligible buyers.

Every situation is different

LVR is just one part of the picture. Your overall financial position, income stability, and credit history all play a role in a lender's assessment. Our team can help you understand how LVR may affect your options and what steps you might consider.