What Is LVR and Why Is It Important?

If you’ve been looking into buying a home or reviewing your mortgage, you’ve probably heard the term LVR come up. It can sound a bit technical, but it’s actually pretty simple and really helpful to understand.

So, what is LVR?

LVR stands for Loan to Value Ratio. It’s just a way of showing how much of a property you’re borrowing compared to its value.

For example, if you buy a house for $600,000 and have a $120,000 deposit, you’d be borrowing $480,000. That means your LVR is 80%.

In short, the bigger the deposit, the lower the LVR.

Why do banks care about LVR?

LVR helps lenders work out how risky a loan might be. Generally, the lower your LVR, the more options you’ll have. This can sometimes mean access to better interest rates or a wider choice of lenders.

If your LVR is higher, like above 80%, there may be fewer options or extra costs to think about. That said, lots of people buy homes with less than a 20% deposit, especially first home buyers. It just means things need to be looked at a bit more carefully.

Why it’s good to know your LVR

Knowing your LVR gives you a clearer picture of where you stand. It can help you:

• Understand what deposit you might need

• See what lending options could be available

• Plan ahead if you’re working towards a lower LVR

• Make more confident decisions around buying or refinancing

It’s only one piece of the puzzle

LVR is important, but it’s not the only thing that matters. Your income, expenses, credit history, and the lender’s criteria all play a part too. That’s why it’s always best to look at the full picture rather than focusing on one number.

If you’re not sure what your LVR is or what it means for you, a quick chat can usually clear things up and help you understand your options.