Why is LVR (Loan To Value Ratio) important?

The loan to value ratio (LVR) is the amount of money borrowed in proportion to the value of the property being purchased or refinanced.  In Australia, the LVR is an important consideration for both borrowers and lenders, as it can impact the eligibility for home loans, the amount of money a lender is willing to lend and the potential requirement for Lenders Mortgage Insurance, or LMI.

Why does LVR matter?

LVR affects your borrowing power as lenders use LVR to determine how much they can lend against a property. Typically in Australia, if you have an LVR of more than 80% you may have to pay LMI. In certain circumstances LMI may however also apply to LVR’s less than 80%. Additionally, the higher the LVR, the higher risk the lender assumes, potentially affecting your loan terms.

How is LVR calculated?

The Loan to Value Ratio is typically expressed as a percentage and is calculated by dividing the amount borrowed by the current market value of the property.

LVR = (Loan Balance) / (Property Value)

For example, if a borrower wants to buy or refinance a property worth $800,000 and borrows $640,000, their LVR would be 80% ($640,000 / $800,000 = 0.80).

Why it's important?

In general, the lower the LVR, the more likely a borrower is to be approved for a loan. This is because a low LVR indicates that the borrower has a larger amount of equity in the property, which is seen as less risky by lenders. Put simply, the more money a borrower has, the less money the lender needs to lend out.

Many home loan lenders offer more favourable interest rates when you have a lower LVR. For example, a customer with a 70% LVR may be able to access a better rate than a customer with an 80% LVR.  At Unloan, we offer competitive low rates for all our customers.

Most lenders only lend up to 80% LVR, which means, as a home buyer you'll need to save a 20% deposit. Some lenders will lend more than 80%, but will charge additional premiums, like the lenders mortgage insurance (LMI), which is designed to protect the lender and not the borrower.

In summary, LVR is an important consideration for both borrowers and lenders. By understanding the LVR and how it is calculated, borrowers can make better informed decisions about their home loans.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.