Loan-to-Value Ratio (LVR)
Finance & Loans
The percentage of a property's value that is funded by a mortgage loan.
Full Explanation
LVR is calculated by dividing the loan amount by the property's appraised value. Lenders use it to assess risk: a higher LVR means more risk for the lender. If your LVR exceeds 80%, most Australian lenders require you to pay Lenders Mortgage Insurance (LMI). A lower LVR typically means better interest rates and loan terms.
Example
You borrow $400,000 to buy a $500,000 property, giving you an LVR of 80%.
Frequently Asked Questions
What LVR do I need to avoid LMI?
Most lenders require an LVR of 80% or lower to avoid Lenders Mortgage Insurance. Some lenders offer LMI waivers for certain professionals (doctors, lawyers) at higher LVRs.
How does LVR affect my borrowing power?
A lower LVR generally gives you access to lower interest rates and better loan features. It also demonstrates lower risk to the lender, which can make approval easier.