You’ll hear the term Loan-to-Value Ratio a lot when applying for and exploring home loans. It’s important to understand what it is and how it applies to you as it may impact how much you can borrow.
What is Loan to Value Ratio (LVR)?
Loan-to-Value Ratio otherwise known as LVR is the amount you need to borrow calculated as a percentage of the value of the property you’re looking to buy.
The bigger your deposit, the lower your LVR will be.
How is LVR calculated?
When buying a property, to calculate your Loan-to-Value Ratio, you divide your loan amount by the purchase price or the valuation of the property you’re buying, whichever is the lower value of the two. This is expressed as a percentage.
For example, if you were going to borrow $500,000 and the property price was $750,000 you would calculate it as below.
($500,000 loan value ÷ $750,000 property value) x 100 = 66.67% LVR.
What does it mean for my home loan?
LMI is usually a one-off payment and protects the lender. The higher your LVR is, the higher your LMI will be. While you will pay the LMI premium, it’s important to remember it only protects the lender, not you as a borrower.
So that you can avoid paying LMI and reduce your LVR, you should aim to save as much of a deposit as you can over 20%.
Buying a property is a journey. Whether it's your first purchase, a life-changing move or a long-term investment, the journey is never the same. We understand each buyer is different and so is each home. That's why we have a range of home loans to suit your needs.
Check out our range of home loans
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Home Loan Interest Rates effective 11 May 2022.
1. Comparison rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different comparison rate. Fees and charges apply. Terms and conditions available upon request.
2. New apps received 30 Jun 2022, funded by 30 Sep 2022. Not available to existing Bank First owner occupied or investment home loan customers. Min loan $200k, max loan $2m, interest only not available. Premier Package annual fee of $390 will be waived for the first year and charged annually thereafter. Rate includes a 0.33% p.a. discount off the standard Premier Package variable rate for three years after which it will revert to the standard Premier Package variable rate. Not available in conjunction with any other offer. Bank First reserves the right to amend or withdraw this offer at any time.