Loan to Value Ratio (LVR)
The loan amount expressed as a percentage of the property value, used by lenders to assess risk on a home loan.
In detail
LVR is calculated by dividing the loan amount by the lower of the purchase price or the lender valuation, then multiplying by 100. A borrower putting down a $100,000 deposit on a $500,000 property is borrowing $400,000, giving an LVR of 80 per cent.
Lenders use LVR to price risk. Loans above 80 per cent LVR typically attract Lenders Mortgage Insurance because the bank takes on more exposure if the borrower defaults. Some lenders cap owner occupier lending at 95 per cent LVR inclusive of capitalised LMI, and investment lending is often capped lower.
Why it matters for brokers
LVR drives product eligibility, interest rate tiers, and LMI costs. Brokers who quote an accurate LVR upfront avoid rework and reduce the chance of a declined application after valuation.
Example in practice
A client wants to purchase a $750,000 home with a $75,000 deposit. The loan needed is $675,000, giving an LVR of 90 per cent. The broker knows LMI will apply, so they quote both the interest rate tier for 90 per cent LVR lending and an estimated LMI premium when presenting options.
Related terms
Lenders Mortgage Insurance (LMI)
An insurance premium charged to borrowers that protects the lender, not the borrower, if a high LVR loan goes into default.
Serviceability
A lender assessment of whether a borrower can meet loan repayments from their income after accounting for expenses, existing debts, and a buffer.
Debt to Income Ratio (DTI)
Total debt divided by gross annual income, used by lenders as a supplementary risk measure alongside serviceability.
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