What Is LVR?

At some point in your journey to home ownership you will come across the term ‘LVR’ or Loan to Value Ratio. So, what does that mean and how does it affect you as a home buyer? 

What is LVR? 

LVR or Loan to Value Ratio, is the amount you are borrowing as a percentage of the value of the property you are buying. The bigger your deposit, the lower the LVR. 

What isn’t included in the loan amount when calculating LVR? 

It’s important to remember the upfront costs like conveyancing fees and stamp duty aren’t included in the loan amount for LVR calculations. 

The loan to value ratio is calculated by dividing the loan amount by the purchase price or valuation of the property you’ve purchased and then expressed as a percentage. 

For example: 

You know you want to borrow $450,000 

The property you want is priced at $600,000 

The LVR of the house is calculated like this: 

($450,000 loan ÷ $600, 000 property value) x 100 = 75% LVR 

It’s worth noting that a lender will value a property and decide how much they are prepared to lend you based on their valuation, this does not necessarily match the advertised price. 

Impact of LVR on your home loan 

Lenders place a large emphasis on LVR when assessing your application, the lower the LVR the lower the risk to the bank. Generally, lenders consider loans with an LVR over 80% of property value to be higher risk. If your LVR is over 80% you’ll probably need Lenders Mortgage Insurance (refer to our fact sheet on that topic).