A LVR calculator, also known as the Loan to Value Ratio Calculator. It is the amount of your loan compared to the value of your property. To give you a better picture, a $300,000 property with a deposit of $75,000 has a Loan to Value ratio of 75%
LVR = [(300,000-75,000)] ÷ 300,000 x 100
What Does a LVR Calculator Do?
A Loan to Value ratio, as simple as it may seem can do a lot of help in deciding whether to proceed with your loan application or if you would rather hold your plans while saving up for a higher deposit.
The LVR is also a number used by mortgage lenders to comprehend how risky you are as a client and whether they will approve you for the home loan amount that you require. A high LVR means that you need to borrow a large amount of money to be able to secure the property you have in mind. This also means that your repayments will also be higher compared to someone who secures a large deposit parallel to a low LVR.
A deposit lower than 20% of your home value will also require you to pay from a Lenders Mortgage Insurance. This insurance is required by home lenders in Australia as protection in the event that the borrower fails to repay the mortgage. The amount of LMI you’ll have to shoulder is equivalent to the value of your home loan repayments for a set period of time as discussed within the insurance policy.
Computing the LVR for Mortgage Refinance
For clients that are seeking to refinance a property that they already own, you can compute your LVR by getting your property appraised or undergo valuation. Your property’s worth may differ from what it is initially valued during the time you bought it. A renovation or an increase the prices properties in your area may affect the current value of your property.
Valuation is required for the following types of property
- The loan amount is at or below 80% LVR
- The loan amount is under $800,000
- Property is located in a capital city of major regional center
- The purchase is through a licensed real estate agent
- You have provided full evidence of your income
- The real estate is not a new dwelling
- You are not related to the property vendor
The bank or a company hired by the bank will do a valuation of your property and will include such the amount as the price on the Contract of Sale if you meet the criteria mentioned above.
Why Aim for an 80% LVR?
You can avail 95% LVR home loans if you are short in cash, but having a huge deposit does a lot of wonders and offers several advantages in terms of repaying a mortgage in Australia. If you can save for a 20 percent down payment, or even more, it will help reduce several other costs included in taking out a home loan.
Below are a few advantages of aiming for an 80% LVR or lower
You’re exempted from paying Lenders Mortgage Insurance if your deposit is within or above 20% of the value of your property. LMI will cost you around 2% of the total value of your loan. For a $300,000 loan, it will cost you $6,0000. You’ll save that amount if you aim for more than 20% down payment.
Banks and lenders under intellichoice.com.au offer lower interest rate for borrowers who have an 80% or lower LVR. The more equity in the home, the less is the possibility of getting a default since the risk becomes lower with a higher down payment. This reduced interest rate can add up in time to tens of thousands of dollars over the whole repayment term of the loan.
You’ll be able to borrow less with a higher deposit. Such will lower your total loan amount, which is parallel to the amount you have to repay your bank or lender. Your borrowing power also increases in the process. Your borrowing power also increases in the process. If you are aiming for a higher loan amount and you were able to provide a deposit greater than 20% of the property value, the chances of getting that loan approved are also higher.
Understanding how LVR affects your mortgage in the long run makes a lot of difference is you want to save thousands in your home loan repayments.