The Loan to Value Ratio (LVR), also known as Loan to Valuation Ratio, is a term used by lenders to express the ratio of a loan to the value of the asset for which the loan will be used.
In the context of home loans, the LVR is simply the home loan or investment loan amount divided by the value of your property.
Example
- A property is advertised for sale at $500,000, and you have saved a deposit of $100,000 and require a loan for the remaining $400,000. Assuming the lender also values the property at the advertised sale price, the LVR is $400,000 ÷ $500,000 (x100) = 80%.
The LVR will help determine whether your home loan needs to be covered by Lenders’ Mortgage Insurance (LMI) or a Low Deposit Premium (LDP). We will require you to pay LMI or LDP if we lend you more than 80% of the value of a property.
The maximum we may lend to you is up to 95% of the valuation amount (inclusive of Lenders’ Mortgage Insurance). However, limits can apply and are determined by the circumstances of your loan.
It’s important to understand that for LVR purposes, the value of a property is determined by our valuation, not the price you pay for it or the advertised price. There may a difference between our valuation and the purchase/advertised price.
Postcode restrictions
In order to reduce our risk, we may cap the LVR on our home loans differently according to the suburb in which a property is located. This means you’ll need to save a larger deposit in order to apply for a home loan to buy within that suburb.
Check this carefully with your lender before you apply for your home loan so you know exactly how much you need to save before proceeding with your application.