Loan to Value Ratio (LVR)
The loan to Value Ratio (LVR) is the percentage of a property’s value that is financed through a loan. It helps lenders measure borrowing risk and determines how much deposit a borrower needs.
Quick reference:
Lending Metric. How much property’s value is borrowed. Threshold: 80%.
Expanded Explanation:
In property investment, LVR is calculated by dividing the loan amount by the property’s value and multiplying by 100. For example, if you buy a property worth $600,000 and borrow $480,000, your LVR is 80%. A higher LVR means more risk for the lender and less equity for the buyer.
In Australia, most lenders prefer an LVR at or below 80%. Borrowers with a higher LVR usually need to pay Lenders Mortgage Insurance (LMI), which protects the lnder if the borrower faulters. Keeping your Loan to Value Ratio lower can reduce interest costs and improve loan approval chances.