The banks love to make abbreviations and LVR is one of the most common within the lending industry. Otherwise known as Loan-to-Value Ratio (LVR), the formular is actually pretty simple. You divide the loan amount by the value of the security (House or Unit). This can be confusing, so we just made a calculator to do it for you.
There are four good reasons why it pays to know your loan to value ratio.
Every financial institution maintains its own internal thresholds for the maximum loan to value ratio they are willing to accept. For example, some lenders cap their maximum LVR at 90%, requiring a minimum 10% deposit before they will consider your application. Others are more flexible, offering a maximum loan to value ratio of 95%, which allows eligible buyers to enter the market with as little as a 5% deposit.
Your loan to value ratio is the primary factor in determining if you’ll be hit with lenders mortgage insurance. Generally, if your loan to value ratio exceeds 80%—meaning your deposit is smaller than 20%—lenders view the application as higher risk and will require you to pay LMI. This premium can add thousands to your upfront costs, which is why many buyers strive for that 20% equity “sweet spot.”
Maintaining a lower loan to value ratio signals to the bank that you are a low-risk borrower. To attract these “safe” clients, many lenders offer tiered pricing; the more equity you have, the better your interest rates likely are. Beyond just a lower rate, a low LVR can unlock premium banking packages and steeper ongoing fee discounts.
When you have a high loan to value ratio, you are financing a larger portion of the property’s purchase price. This results in higher monthly repayments and leaves you more sensitive to fluctuations in interest rates. A larger debt burden means that even small rate hikes can have a more significant impact on your household budget.
While a loan to value ratio calculator provides a great estimate, remember that lenders won’t just take the purchase price at face value. They will commission a professional valuation to assess:
If the bank’s valuation comes in lower than what you agreed to pay, your loan to value ratio will instantly rise. In this scenario, you may be required to bridge the gap with a larger cash deposit to satisfy the lender’s LVR requirements.
Let’s dive into the commonly asked questions about how a LVR calculator can help.
An LVR Calculator is a digital tool designed to determine your Loan-to-Value Ratio swiftly and accurately. This handy device does the heavy lifting for you, freeing you from the complex calculations. Simply input the requisite data, and voila – your LVR pops out!
The LVR Calculator operates by dividing your loan amount by the appraised value of the property, then multiplying the result by 100 to get a percentage. This percentage is your LVR. Most online calculators come with user-friendly interfaces, so you’re only a few clicks away from your LVR.
The LVR Calculator is also an LMI saviour. Most lenders require LMI if your LVR is above a certain percentage. Knowing your LVR beforehand allows you to plan your loan amount and avoid this unnecessary cost.
An LVR Calculator is a tool that calculates the Loan-to-Value Ratio of a mortgage by dividing the loan amount by the appraised property value.
The LVR Calculator aids in understanding your borrowing capacity, planning your mortgage, assessing risk levels, and potentially avoiding LMI.
A high LVR signifies high risk for lenders, as it means you’re borrowing a larger portion of the property’s value.
You can lower your LVR by increasing your deposit, thereby reducing the loan amount.
Yes, all lenders use LVR as a standard measure to assess the risk involved in lending.
In the end, understanding your Loan-to-Value Ratio and utilising the LVR Calculator can prove to be a game-changer in your home-buying journey. With knowledge as your compass and the LVR Calculator as your guide, you’re all set to navigate the mortgage maze with ease and confidence. So go ahead, take charge of your home loan voyage and turn your dream home into a reality!
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