Understanding Loan to Value ratio (LVR)
Ever wondered how BankVic works out how much you can borrow when buying you a home? One of the most important steps in the process is calculating something called the loan to value ratio, or LVR.
What is LVR?
LVR stands for loan to value ratio. It’s a percentage that represents how much of the property’s value you’re borrowing. Banks use this ratio to assess the risk of your loan and determine whether additional costs, like lenders mortgage insurance (LMI), might apply.
How is LVR calculated?
The formula is simple:
LVR = (Loan amount ÷ property value) × 100
Let’s look at an example:
Loan amount: $480,000
Property value: $600,000
LVR = (480,000 ÷ 600,000) × 100 = 80%
This means you’re borrowing 80% of the property’s value. The remaining 20% would typically be your deposit.
Why does LVR matter?
Your LVR helps determine:
How much deposit may be required
Whether LMI applies.
Generally, a lower LVR (e.g. below 80%) is seen as lower risk.
Ready to take the next step?
If you’re curious about LMI, we recommend watching our video: ’What is LMI?’ It’s a great way to continue your journey with confidence.
Reach out to our BankVic Home Loan Mentors to help you find out how much you can borrow when buying your first home.
We’re here to help
If you have any questions about buying your first home, visit www.bankvic.com.au/home-buying/first-home-buying, call 13 63 73 or book an appointment with a Home Loan Mentor by visiting www.bankvic.com.au/book-appointment.
