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What Is 'Loan to Value Ratio'

Loan to value ratio or LVR is nothing short of a buzzword in the mortgage market. It might sound a little daunting with words like ‘value’ and ‘ratio’ in it, but it is not really all that bad. It is an easy concept that has an immense effect on the borrowing power of a person. Let’s dismantle it today.

What is Loan to Value Ratio?
Let’s get the definition out of the way first. So, what is LVR? As the name suggests, LVR is the ratio of the loan amount to the value of the property. It is the amount of money you need from the lender divided by the value of the property as assessed by the lender. It is usually presented as a percentage.
Let’s say you want to buy a home priced at $600,000. You already have some funds lying with you that add up to approximately $150,000. Hence, you need to borrow only $450,000. Here is what your LVR will look like.

LVR = (450,000/600,000)*100 = 75%

Great! That’s it? Yes, for the calculation part. From now on, when someone throws around the term “LVR”, you know what it means and how it is calculated. Of course, this is an oversimplified version and in the real world scenario, there will be fees and additional charges. But, for the introductory stage, this is a good way to understand LVR.

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