When applying for a mortgage, understanding the Loan-to-Value Ratio (LVR) is crucial. LVR not only influences your eligibility but also affects loan conditions and interest rates. Let’s break down what LVR is, how it’s calculated, and why it matters.
What is LVR?
LVR measures the loan amount compared to the property’s value, expressed as a percentage. It indicates the lender's risk—higher LVRs mean higher risk for lenders, as more of the property is financed by the loan.
How is LVR Calculated?
The formula for LVR is:
For example, if you’re purchasing a $500,000 property with a $400,000 loan:
This means 80% of the property’s value is financed, and you provide a 20% deposit.
How LVR Impacts Your Mortgage Options
1. Higher LVR = Stricter Requirements
Lenders often impose stricter conditions on loans with an LVR above 80%, such as requiring Lenders Mortgage Insurance (LMI).
2. Lower LVR = Better Options
With a lower LVR (e.g., 70% or less), you may access more favorable loan terms and competitive interest rates.
3. Interest Rates and LVR
- Higher LVR: Often leads to higher interest rates due to perceived risk.
- Lower LVR: May result in lower rates, reducing overall borrowing costs.
Why LVR Matters for Investment Planning
- Cash Flow: A lower LVR can reduce interest costs, supporting positive cash flow for rental income.
- Equity Growth: Lower LVR builds equity faster, enabling refinancing or funding additional investments.
- Risk Management: A manageable LVR provides a financial buffer against market fluctuations.
- Portfolio Expansion: Accessing equity from a lower LVR can help grow your investment portfolio.
Strategies to Manage LVR
- Save a Larger Deposit: A bigger deposit directly lowers your LVR. Check out our savings goal calculator here!
- Make Extra Repayments: Reduce your loan balance over time to improve your LVR. Check out our extra repayment calculator here!
- Leverage Property Value Growth: Rising property values can lower LVR without extra repayments.
- Refinance: Adjust your LVR by refinancing if your property’s value has increased.
Final Thoughts: Make LVR Work for You
Understanding and managing LVR is essential for reducing costs, improving financial flexibility, and supporting long-term property goals.
At Mortgage Achievers, we’re here to guide you through LVR requirements and tailor solutions to meet your needs.
Need Help With LVR?
Contact our team at Mortgage Achievers to learn how your LVR can impact your mortgage options. Let us help you take the next step toward achieving your property and investment goals!
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DISCLAIMER
This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs.
We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional