It’s a useful topic because people hear “LVR” all the time when talking about home loans, but many first-home buyers don’t actually understand what it means or how it can affect their loan, deposit and potentially LMI.
What Is LVR and Why Does It Matter When Applying for a Home Loan?
If you’re looking to buy a home in Mackay, you’ve probably come across the term LVR.
But what exactly does it mean?
LVR stands for Loan-to-Value Ratio. It is the percentage of a property’s value that you are borrowing from the lender.
For example, if you purchase a $500,000 property and borrow $400,000, your LVR is 80%.
Understanding your LVR can help you work out how much deposit you may need, whether Lenders Mortgage Insurance (LMI) could apply and how a lender may assess your application.
How is LVR calculated?
The calculation is relatively simple:
LVR = Loan amount ÷ Property value × 100
For example:
If you were borrowing $540,000 against the same $600,000 property, your LVR would be 90%.
The higher your LVR, the more of the property's value you are borrowing.
Why does your LVR matter?
Your LVR is one of the factors lenders consider when assessing a home loan application.
Generally, a lower LVR means you have more equity in the property relative to the amount you owe.
A higher LVR means you are borrowing a larger percentage of the property's value.
This can affect things such as:
1. How much deposit you need
A larger deposit generally means you need to borrow less, which results in a lower LVR.
For example, on a $600,000 property:
$60,000 deposit → $540,000 loan → 90% LVR
$90,000 deposit → $510,000 loan → 85% LVR
$120,000 deposit → $480,000 loan → 80% LVR
$150,000 deposit → $450,000 loan → 75% LVR
Keep in mind that your deposit isn't necessarily the only money you'll need upfront. You'll also need to consider costs such as stamp duty where applicable, conveyancing, inspections and other purchasing costs.
Does a higher LVR mean you can't get a home loan?
Not necessarily.
Some lenders offer home loans at higher LVRs, depending on their lending policies and your individual circumstances.
However, borrowing a larger percentage of the property's value can come with additional considerations.
This is where getting advice before you start house hunting can be useful.
A mortgage broker can look at your overall financial position and help you understand the different lending options available to you.
What does LVR have to do with LMI?
One of the reasons you'll often hear about LVR is because of Lenders Mortgage Insurance (LMI).
LMI is generally associated with higher-LVR lending and can protect the lender if the borrower is unable to repay the loan.
For some borrowers, paying LMI may allow them to purchase a property with a smaller deposit rather than waiting until they have saved a larger amount.
The exact requirements and costs depend on the lender, loan structure and your circumstances.
There are also some circumstances where eligible borrowers may be able to access schemes or lender policies that reduce or eliminate LMI.
What happens if the bank's valuation is different from the purchase price?
This is another important reason to understand LVR.
Your LVR is generally calculated using the lender's accepted property value, which may not always be the same as the price you agreed to pay.
For example:
You agree to purchase a property for $600,000, but the lender's valuation comes back at $570,000.
If you were borrowing $480,000, your LVR based on the valuation would be:
$480,000 ÷ $570,000 = 84.2%
That's different from the 80% LVR you might have expected based on the $600,000 purchase price.
A valuation can therefore affect how much you need to contribute and how the lender structures the loan.
Is a lower LVR always better?
From a borrowing perspective, a lower LVR generally means you're borrowing less relative to the property's value.
However, that doesn't automatically mean putting every available dollar into your deposit is the right strategy for everyone.
For example, you may want to keep some savings available as an emergency fund, for renovations or other expenses.
The right approach depends on your circumstances, goals and the loan options available to you.
What LVR should you aim for?
There isn't one LVR that is right for every borrower.
An 80% LVR is often talked about because it is a common benchmark when discussing LMI, but some borrowers may choose or need to borrow at a higher LVR.
Others may prefer a lower LVR because they want to contribute a larger deposit.
The important thing is understanding what each option means for your overall financial position, rather than simply aiming for a particular percentage.
LVR FAQs
What does LVR stand for?
LVR stands for Loan-to-Value Ratio. It represents the amount you are borrowing as a percentage of the property's accepted value.
Is 80% LVR good?
80% LVR is a common benchmark, particularly when discussing LMI, but whether it is suitable depends on your circumstances and the lender's requirements.
Can I get a home loan with a 90% LVR?
Potentially, yes. Some lenders offer loans at higher LVRs, subject to their lending criteria and your financial circumstances.
Does LVR include my deposit?
No. Your deposit is the amount you contribute towards the purchase. Your LVR represents the percentage of the property's value being financed by the loan.
Can LVR change after I buy?
Yes. Your LVR can change as you repay your loan, make additional repayments, or if the value of your property changes.
Does LVR affect LMI?
It can. Higher-LVR loans are generally more likely to involve LMI, although eligibility and pricing depend on the lender and your individual circumstances.
Buying in Mackay? Let's Talk LVR
Whether you're buying your first home, upgrading, refinancing or purchasing an investment property in Mackay, understanding your LVR can help you better understand your borrowing position.
At Gardian Finance, our mortgage brokers can help you work through your deposit, borrowing options, LVR and the costs involved before you start making offers.
📍
11–13 Gordon St, Mackay📞
(07) 4953 2799🌐
www.gardian.com.auWith you at every step.
