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Loan to value ratio

LVR = (Loan Amount/Property Value) x 100 LVR stands for Loan to Value Ratio and is the proportion of money client borrows for a home loan
compared to the value of the property. It is used to assess the ‘risk factor’ of the clients; and lenders will calculate client’s LVR before deciding whether to approve the home loan or not.

The higher LVR is, the more of a risk client may be to lender. Calculating LVR When calculating LVR, lender will look at the property’s value and the deposit to determine how much client can borrow. The lender will then divide the property’s value by the deposit saved to calculate home loan amount.

For example, if client wish to purchase a $400,000 property and have a $100,000 deposit saved, they will need to borrow $300,000 and this would be an LVR of 75%.  (Note: Stamp duty and other fees have not been taken into consideration here)

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 client defaults. 


One option to help reduce your loan to value ratio is to use a guarantor. A guarantor can offer the equity saved in their property as a security for the home loan. Many parents often become a guarantor for their kids to help them purchase their first home. However, it does not come without risks. If the borrower is unable to meet repayments then it is up to the guarantor to repay the money and, if the guarantor cannot do so, the default could appear on the guarantor’s credit report. 

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 getting the loan approved.

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