What Is My LVR?

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• published: 20 Jan 2014
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http://www.homeloanexperts.com.au/home-loan-articles/loan-to-value-ratio-lvr/ What is LVR & how can it impact your mortgage? Find out if your application is a low risk, or a high risk to Australian banks. --------------------------------------------------------------------------------------- Try our LVR Calculator to find out the LVR for your mortgage - http://www.homeloanexperts.com.au/mortgage-calculators/lvr-calculator/ --------------------------------------------------------------------------------------- This video was produced by Home Loan Experts. Visit us at http://www.homeloanexperts.com.au for more information. Subscribe to our channel to learn more about home loans: http://www.youtube.com/user/homeloanexperts --------------------------------------------------------------------------------------- Video transcript: Wondering what LVR means? We walk you through what LVR stands for, how to calculate it and why it is so important. But first, meet Lilly. Lilly has just found a house that she wants to buy for her family to live in. She goes to the bank and they are happy to provide a loan up to 80% LVR. Great! But what does that mean? LVR stands for Loan to Value Ratio. Effectively, LVR is the percentage of the property value that you are borrowing. Banks use this to assess the risk of your mortgage. The higher the LVR the higher the risk to the bank. Lilly has found a home that is worth $500,000 and she wants to get a loan of $400,000. Well $400,000 is 80% of $500,000. So that means her loan has an LVR of 80%. That's great! Most lenders are happy to take on a loan for 80% LVR. But what if Lilly wanted to borrow more than 80%? Most banks consider anything over 80% as a high risk. If anything goes wrong then the bank may lose its money. So the bank would take out Lenders Mortgage Insurance to protect itself, which Lilly would have to pay for. Now what would happen if the property that Lilly was purchasing was worth more than what she was paying for it? Say it was worth $600,000. Sounds like Lilly got a good deal! Lilly's bank will send out someone to value her property. The bank will compare the property's purchase price and valuation. Although there are a couple of exceptions, the bank will normally choose the lower of the two when calculating the LVR. So her LVR is still 80%! The reason is because the bank is thinking, if it is really worth $600,000 then why didn't the owner sell it for $600,000? The banks sure are a conservative bunch! So what happened to Lilly? Well the banks approved her mortgage and her family have moved in and are enjoying life in their new home. And you can get your loan approved too by contacting the home loan experts