What is LVR? – Loan to Value Ratio

The Loan to Value ratio (LVR) is the way of working out the actual financial value of a property, and determines whether your home loan will need to be covered by Lenders Mortgage Insurance (LMI).

The Loan to Value ratio is the loan amount divided by the value of your property. Banks will require you to have Lenders Mortgage Insurance (LMI) if they lend more than 80% of the value of the property.

Here are some examples:

1. Loan amount: $250,000 divided by property value: $500,000 = 0.50% LVR (Loan-to-value ratio)

In this example, due to the LVR being under 80% you won’t be charged LMI (Lenders Mortgage Insurance).

2. Loan amount: $700,000 divided by property value: $800,000 = 0.87% LVR

In this example, due to the LVR being over 80% you will be charged LMI (Lenders Mortgage Insurance).

In regards to the LMI charge, it differs with each Bank. We’ll work this out for you.

So that’s how you calculate LVR on a single property.

But what if you have two properties?

For an example, let’s say one is an owner occupied home (which you live in) and another is an investment property and they are both secured together (cross-collateralized).

You would then add the total loan amount together, and the total security value together:

$450,000 (loan one) + $300,000 (loan two) = $750,000 (the total loan amount).

$720,000 (property one) + $400,000 (property two) = $1,120,000 (the total security value).

Total loan amount: $750,000 divided by total property value: $1,120,00 = 0.66% LVR.

You must take into account that the value of the property is determined by the banks valuation and not the price you paid for it. There may be a difference between the valuers price and the purchase price.

Contact Berti Financial to find out more about LVR and how it may relate to your next purchase.