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Loan to Value Ratio

Discussion in 'Investing Glossary' started by Glossary, 27th Sep, 2006.

  1. Glossary

    Glossary Active Member

    12th Sep, 2006

    Loan to Value ratio is generally calculated as the ratio of loan amount to purchase price for a newly acquired property, or the loan amount to current bank valuation for an existing holdings.

    To calculate LVR, simply divide the loan amount by the purchase price.

    eg. purchase price = $100,000 and loan amount = $90,000 then LVR = loan amount / purchase price = 90000/100000 = 0.9 = 90% LVR

    Most banks will generally loan up to 80% of the value of residential property without any issues (assuming borrower has sufficient servicability), and will lend higher amounts if the borrower pays Lenders Mortgage Insurance (LMI).

    Lower LVRs also usually attract LMI, but below 80% LVR, this is usually paid by the lender itself.

    Non-traditional products such as Lo-Doc and No-Doc loans will have different criteria, often lower LVRs.

    Also known as:
    • LVR