In lending terms the LVR or Loan to Value Ratio represents the relationship between the value of the property used as security for a home loan and the loan amount itself.
When buying a residential property generally if you stay at an LVR of 80% or less you will avoid having to pay for lenders mortgage insurance (LMI). However some lenders will waive this for higher LVRs depending on their policies.
How to calculate your home loan LVR
To calculate the LVR divide the loan amount by the value of your property. For example if you have a loan on your home of say $400,000 and the property is valued at say $650,000 your LVR will effectively be 61%.
You may have saved towards the deposit on your first home, but did you know that your LVR can be the key to buying an investment property? If you enjoy an LVR low enough you may have enough equity in your home to use as a deposit on another property. In the example above, those homeowners would have access to 19% of the value of their home which they could use to invest in another property, without having to worry about LMI.
That is in effect $123,500 available to use towards the deposit and costs associated with a property purchase and subsequent home loan that they did not need to accumulate first. If you would like to discuss this example and how it could relate to your situation please give us a call.