| What is L.V.R. and Why is it Important?
LVR or loan-to-value ratio is an essential consideration when applying for a home loan. It refers to the percentage of the property’s total value that the lender agrees to lend you. A higher deposit results in a lower LVR, which increases the security for the lender and gives you a higher chance of approval, although other factors also come into play.
An LVR above 80% typically requires you to pay for Lender’s Mortgage Insurance (LMI), which can be quite costly and should be avoided if possible. Different lenders may have varying LVR caps based on the suburb’s risk profile in which the property is located.
Your financial position, credit history, home loan amount, property location, and loan type all influence the lender’s decision on the appropriate LVR. Keep in mind that the lender will value the property differently from its advertised purchase price when deciding how much to loan you, as the bank valuation reflects longer-term sales history and what the lender expects to recover from the sale of the property if default occurs.
Calculating your LVR is relatively straightforward – divide the total mortgage loan amount by the total purchase price of the home. If the result is 80%, it means that the deposit is 20%. LVR is a crucial factor to consider when applying for a home loan, and understanding its significance is essential to secure a favorable outcome.
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