When you talk to a home loan specialist you will hear the term LVR… a lot! But what is an LVR and why is it important?
LVR stands for Loan to Value Ratio, the loan amount as a percentage of the value of the property. For example: if the value of your new home is $100,000 and your loan amount is $85,000, your LVR is 85%. $100,000 divided by $85,000 = 0.85 or 85%.
Different lenders have different maximum LVRs. Your LVR will determine the minimum amount you will need to contribute to your purchase. The higher the LVR, the higher the loan amount and loan repayments but lower minimum deposit.
The lower the percentage (LVR), the lower the risk to the lender. If your LVR is over 80% you would likely need to pay for, or add to your loan, lender’s mortgage insurance (LMI). You will also need to meet additional criteria (as mentioned in our previous post: Saving for a deposit isn’t the first step!). We’ll discuss mortgage insurance in more detail in another post soon.
We recommend first home buyers save as much money as they can to help keep the loan amount and LVR down which will reduce possible mortgage insurer costs and ultimately reduce your loan repayment amount. Save, save, save!!
The value is usually determined by the purchase price but is confirmed by an independent qualified valuer. We’ll also provide more info on valuations soon.
If you have any questions feel free to PM us!