And How Does it Work?
Anyone who’s ever researched home loans will come across the term “LVR”. That’s because although LVR can apply to many different types of loan, the term is most commonly heard when buying property.
If you're not familiar with the term, it's a good idea to get a solid grasp of what it is and how it works before you begin applying for a home loan or car finance.
So here's our brief guide to what LVR means and how it's calculated.
What Does LVR Stand for?
How is it calculated?
LVR stands for “Loan to Value Ratio” and it’s a way of expressing the loan on an asset as a percentage of the current market value of that asset.
Ok, now in English.
Say you’re buying a property valued at $500,000 and you’re putting up a 10% deposit of $50,000. In this case, the LVR would be 90% because the lender is covering 90% of the loan amount upfront.
What does the LVR need to be for me to get a home loan?
Before the Global Financial Crisis, it was possible to get loans with an LVR of 110%. This meant you could not only get a home loan with no deposit, but the banks would lend you an additional 10% of the property value to cover fees like stamp duty.
It's a good idea to get a solid grasp of what LVR is and how it works before you begin applying for a home loan or car finance.
These days, things are quite different. Some lenders won’t touch you unless you can put up sufficient cash to keep the LVR at 80% - which means saving enough for a 20% deposit. However many lenders will go as high as 95-97% LVR.
That 95% to 97% can include certain fees like stamp duty and loan establishment fees, which are rolled into the loan to avoid eroding your deposit.
LVR on other assets
LVR is also used to calculate risk when lending on other assets - like car loans, or motorbike loans.
And while the days of 100%+ LVR property loans are gone, it’s still possible to get a car loan with an LVR of up to 150%. This means you can include add-ons like stamp duty and insurance fees in your loan.
Need more advice on LVR? Call us.
With over a decade of experience, Rapid Finance has built a reputation of matching our clients with the right home loan for their circumstances. So if you have questions about LVR or anything else mortgage-related, call us on 1300 467 274.
Call 1300 467 274 to discuss your situation today.