Loan to Value Ratio (LVR) – is it important for my home or investment property purchase finance or refinance?
Principal Mortgage Broker at Oak Laurel.
What is LVR?
“LVR or LTV is the acronym for loan to value ratio. Loan to value ratio is the finance or banking term used to describe the ratio between a loan (or mortgage) and the asset being held as security against that loan. Loan to value ratio is usually described as the loan as a percentage of the asset value.”
Why is LVR important?
The Loan to Value Ratio of your home or investment property and mortgage is important when the bank or lender assessed your loan application (including when you are taking out a new loan or refinancing your existing loan). Banks and lenders consider that the greater the proportion of the property that is being borrowed (up to a certain point) the the higher the risk that they will not get their money back in the event of the borrower defaults on the loan. Generally banks and lenders will allow up to 80% of the property price to be borrowed by PAYG employees without requiring lenders mortgage insurance. Lenders mortgage insurance can cost you (the borrower) thousands of dollars and it insures the bank against you not paying the loan.
Some lenders will also self insure for some borrowers that they consider low risk. Certain banks and lenders consider your profession as a criteria in assessing risk and will waive the lenders mortgage insurance requirements for certain professionals.
The type of property you are borrowing for can also influence the loan to value ratio that the bank or lender will accept. For example if the property is an farm greater than 150 ha many banks will not lend more than 70% of the property value. Also, recently some banks consider different suburbs as higher risk and will only lend to 70% or 80% of the property value in those suburbs.
See more here about: How to calculate your Loan to Value Ratio
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