Buying a home
What is a Loan to Value Ratio (LVR)?
08 November 2022
If you're in the market for a home loan, you've probably heard the term "LVR" thrown around. But what does it mean? More importantly, what impact might it have on your mortgage? In this article, we provide information about LVRs – including how the LVR could affect your borrowing power.
Assessing your risk as a borrower using a Loan to Value Ratio
A Loan to Value Ratio is the amount of a loan as a percentage of the value of the asset (such as a house) it was used to buy. It is calculated by dividing the loan amount by the value of the asset. For example, if you're looking at a property your lender has valued at $500,000 and you have a deposit of $100,000 (20%), you'll need to borrow $400,000 from the lender (excluding other costs, including stamp duty). That means the LVR would be 80% ($400,000 / $500,000 [x100] = 80% LVR).
Generally speaking, the higher the LVR, the greater the level of risk to the lender. By increasing the amount of your deposit, you can lower the LVR.
What is the maximum LVR most home lenders will allow?
The maximum LVR will depend on your lender. It's worth noting that if your LVR is 80% or over, you may have to pay for Lenders Mortgage Insurance (LMI). LMI is designed to protect the lender if a borrower is unable to repay their home loan. Learn more about LMI .
Can the LVR impact your home loan application in Australia?
Lenders can use LVRs and many other factors to assess home loan applications.
If you apply for a home loan in Australia, your lender is likely to consider the LVR. Generally speaking, the lower the LVR, the lower the risk to the lender. The lender may also offer different loan products, rates and fees depending on the LVR.
Get pre-approved for a home loan
If you're looking for a suitable home loan product, it's worth considering how your LVR could impact your application. Talk to a lending specialist at Suncorp Bank about your home loan options and what could be right for you.
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Home Loans are provided by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No. 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Please read the relevant Product Information Document, Lending Fees and Charges and Home Package Plus Terms and Conditions before making a decision regarding any Suncorp Bank products. Fees, charges, terms and conditions apply and are available on request or on our Product Information Documents and Forms page.
TThe information is intended to be of a general nature only and any advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries..