Understanding Loan to Value Ratio (LVR)
Loan to Value Ratio, commonly known as LVR is a key number that lenders use when deviding how much they’ll let an investor borrow. It is calculated by dividing the loan amount by the property’s value then expressing it as a percentage.
For example, if an investor buys a property worth $600,000 and borrow $480,000 the LVR is 80%. In Australia, most lenders prefer a Loan to Value Ratio of 80% or below. If an investors LVR is higher, you may need to pay for Lenders Mortgage Insurance (LMI). This protexts the bank, not the borrower, if the loan can’t be repaid.
An investor keeping their LLVR low by having a larger deposit can reduce costs, make it easier to get approval and lower your interest rate.