What is a Loan-to-Value Ratio & How Does it Affect Your Loan?

If you’re looking to buy your first home, you’ve no doubt already started to encounter some of the jargon surrounding residential mortgages. One of the most important terms to be aware of is LVR, or loan-to-value ratio. Your LVR will have a significant impact on what kind of loan conditions you’ll be applicable for, so it’s essential that you have a clear understanding of where you stand from the get-go.

Loan-to-Value Ratio (LVR) is a financial term that expresses the ratio of the amount of money you want to borrow from a lender to the appraised value of the property that you want to purchase or use as security for the loan. It’s typically expressed as a percentage, and it represents the amount of money you’re borrowing compared to the total value of the property.

For example, if you’re looking to buy a property that is appraised at $500,000 and you want to borrow $400,000, then your LVR is 80% (i.e., $400,000 divided by $500,000, multiplied by 100).

High LVR loans vs. low LVR loans

Lenders use LVR as an important factor in determining the level of risk associated with lending money for a particular property. The higher the LVR, the more risk the lender is taking on because if the borrower defaults on the loan, the lender may not be able to recover the full amount owed by selling the property.

When the LVR is high, lenders may require the borrower to pay lenders mortgage insurance (LMI), which is an insurance premium paid to protect the lender in case the borrower defaults on the loan. The LMI premium is generally a one-time payment, and it can be quite expensive.

LVR loans – what does this all mean?

In summary, the LVR is a crucial factor to consider when applying for a loan, as it can affect the interest rate, the amount you can borrow, and whether you’ll need to pay lenders mortgage insurance. It’s always a good idea to talk to a professional financial advisor or mortgage broker to understand how the LVR affects your loan and your financial situation.

At Perry Finance, our award-winning team of professional brokers will work closely alongside you to find the most suitable product for your individual needs – we can provide expert advice regarding residential loans, commercial mortgages, development finance and more.

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To discuss your needs with a qualified and experienced Perry Finance broker, please don’t hesitate to get in touch.


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