LVR stands for Loan to Value Ratio of a property and is the proportion of money you borrow for a property compared to the total value of the property. It is used to assess the ‘risk factor’ of you as a borrower and lenders will calculate your LVR before deciding whether to approve you for a home loan or not.
The higher your LVR is, the more of a risk you may be to your lender.For example, if you wish to purchase a $400,000 property and have a $100,000 deposit saved, you will need to borrow $300,000 and this would be an LVR of 75%.
Be wary of high LVR. A LVR of 80% or lower is the best place to be as a borrower. Home loans which are over 80% LVR are considered riskier. As a result, most lenders will charge extra fees, such as Lender’s Mortgage Insurance (LMI), in order to protect themselves in case you default.
Another risk of higher a LVR is that you will have larger home loan repayments. A LVR plays an important part in the assessment of a home loan application, so the more you know and understand about how it is calculated, the better chance you will have at finding the right home loan for you.