If you are interested in purchasing an Australia home, you should know what a Loan Value Ratio (LVR) is. Here is information on what this ratio means to your home loan.
“Loan Compared to Home Value”
When Australians consider buying a home, the bank will look at their credit rating, income and the home value. Calculating the LVR is a deciding factor to decide if the loan is to be approved.
Home Loan Amount / Home Value = Loan Value Ratio (LVR)
Lenders prefer the LVR to be 80% or less, meaning that about 20% of the home’s price has been paid as deposit by the buyer. Over time, lenders have been able to offer home loans where the LRV is over 80%, but with the addition of Lenders Mortgage Insurance (LMI) paid by the borrower. The higher the Loan Value Ratio, the higher the LMI that will be paid.
For more information on Lenders Mortgage Insurance (LMI) read our article What Is Mortgage Insurance.