When purchasing a home or getting a loan of any kind, the jargon and abbreviations used can cause confusion, especially when buying property for the first time. With the mortgage industry having a language of its own, knowledge of these terms can empower you to get the most out of your mortgage. One term that you’ll hear very often is “LVR” which stands for loan-to-valuation ratio.
When calculating the amount you would like to borrow to purchase a property, the size of your deposit and whether you are eligible for a home loan, the loan-to-valuation ratio (LVR) is one of the most important elements to consider.
As the name suggests, and in its simplest terms, LVR is the percentage of the loan amount in relation to the overall value of the property. In these instances, the value of the property is assessed by the lender to ensure they accurately calculate your LVR. So, if the property you want to purchase is valued at $600,000 and you need to borrow $450,000 to pay for it, the loan is 75 percent of the property value.
LVR serves an important purpose because it allows different lenders and loan products to permit different maximum LVR for certain loan amounts. Most lenders will finance up to an 80 percent LVR, or in the instance of the loan amount being greater than 80 percent of the home value, lenders mortgage insurance (LMI) may be charged. In addition, low doc loans, that is, a loans to lenders who cannot provide usual required paperwork such as tax returns and financial statements, may only have a maximum of 60 percent LVR due to the increased risk. For more information on lenders mortgage insurance, see our blog on LMI here.Pioneer Credit Connect Home Loan Specialists know all the jargon when it comes to home loans, allowing you to get the mortgage most suited to you. Get to know one of our home loan specialists today by making a home loan enquiry below.