Calculate your loan to value ratio and learn more about LVR’s
Working out your LVR can help you understand more about what interest rate you can get on your home loan.
What is an LVR?
The term LVR is an acronym for “Loan to Value Ratio” and is a calculation used in a lot of different forms of lending. It represents the value of your lending as a percentage of the assets value.
When it comes to home loans, the results of this calculations help lenders work out how risky they think that the loan to give you is going to be.
How does my LVR affect my home loan?
Every lender has different policies depending on the value of your LVR. For the most part, the LVR can determine where you can borrow and how much you can borrow in some cases.
It will affect the interest rate of your home loan as well. Most lenders have their best rates reserved for those with an LVR of 80% or less. Well is no exception here and our best rates are for the lower risk LVR bands (ie Less than 80%).
With a lower risk also comes the savings from not having to pay Lenders Mortgage Insurance. For loans that have an LVR over 80%, you will most likely have to pay for LMI. You can read up more about LMI here.
FAQ’s about LVR
How do you calculate LVR?
It’s actually very straighforward to work out the LVR of your home loan. It is simply the amount borrowed divided by the value of the property being used as security for the loan and then it’s expressed as a percentage (we always multiply by 100).
Let’s look at a quick example below and then we’ll explain the difference in the calculations for purchasing and refinancing.
If we wanted to borrow say $450,000 and the value of the property that we are using is worth $500,000 then our LVR is:
$450,000 ÷ $500,000 = .9 (and then we multiply by 100 to get a %). So our LVR is 90%.