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LVR (Loan to Valuation Ratio)

LVR refers to Loan to Value (or Valuation) Ratio and is expressed as a percentage.

LVR is a term you’ll hear mentioned a lot around home loans. It will commonly be mentioned as can borrow up to 80% of the value for owner occupied homes and for up to 60% for residential investment properties. Every property type has different criteria and some new build homes are exempt or fall under criteria where lending of up to 95% of the properties value can be approved.

To calculate the LVR you will need to know your purchase price and how much of a home loan you will require. The difference is the deposit you contribute.

Example 1: a home loan of $500,000 / (divided by) a property value of $700,000 is 71.42% LVR.

Example 2: a home loan of $720,000 / (divided by) a property value of $800,000 is 90% LVR. This example would be referred to as a low deposit home loan as it is over 80% lending. The difference between the $720,000 loan and the $800,000 purchase price is an $80,000 deposit.

The lower the LVR percentage the better when applying for a home loan. This means a higher deposit or equity amount, the lower the risk to the bank. A high LVR of over 80% will generally incur a fee or additional cost such as a Low Equity Margin, or Premium.

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