The Loan to Value Ratio (LVR) is the portion of money you are borrowing in relation to the value of the property, expressed as a percentage.
For example, a customer applying for a $400,000 loan for a property valued at $500,000 would be borrowing at an 80% LVR.
Usually, different interest rates apply depending on your LVR, and banks often cap the LVR you’re allowed to have.
If you’re borrowing over 80% of your home’s value, banks may require you to take out Lenders Mortgage Insurance (LMI). This insurance protects the bank in case you can’t meet your mortgage repayments and the property has to be sold. You can either pay a one-off premium or have the fee added to your loan amount.
Confused by some of the jargon about home loans and home buying? You’re not alone. That’s why we’ve put together a home loan glossary of some of the more common phrases you’ll come across – and what they really mean.
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