Loan to Value Ratio

The term LVR stands for ‘loan to value ratio’. It shows the value of your home loan as a percentage of the property’s value.

Most lenders will have limits on how much they lend for a purchase or construction of a home. It can vary between lenders from 70% right up to 95%. 

The higher the LVR the smaller the deposit you require. For example, a 90% LVR will require a 10% deposit. For a $500,000 purchase with a 90% LVR, the borrower will require a $50,000 deposit. 

However, having a high LVR, typically above 80%, can result in increased costs to the borrower in the form of Lender Mortgage Insurance (LMI). This can be thousands of dollars over the course of the loan. It can also affect the interest rate you are able to obtain as higher LVR will attract a higher interest rate due to the increased risk that the lender is taking on. 

Lower LVR means you are a lower risk to the bank, as the difference in the value of the home and the loan attached to it is greater and in the extreme case where the bank re-possesses your home, it is more likely to sell the property and cover the amount of debt owing.