LVR

An LVR is the Loan-to-Value Ratio. This is the amount you are borrowing, represented as a percentage of the value of the property you are buying. The bigger your deposit, the lower the LVR will be.

It is important to remember that upfront costs such as conveyancing and stamp duty are not included in the loan amount for LVR calculations unless the client is borrowing to cover these costs.

The LVR is calculated by dividing the loan amount by the purchase price or valuation of the property you are buying, expressed as a percentage.

For example, let’s say that you would like to borrow $450,000 and the property price is $600 000.

The LVR of the home loan would be calculated like this:

($450 000 loan ÷ $600 000 property value) x 100 = 75% LVR

Lenders place a large emphasis on the LVR when assessing your loan application. The lower the LVR, the lower the risk to the bank. Lenders consider loans with a LVR over 80% of the property value to be a higher risk.

The LVR that banks will allow you to borrow depends on the home loan amount you need, the location of your property, your credit history, your income and employment history and the type of loan for which you are applying.

If your LVR is greater than 80%, you will need to get Lenders' Mortgage Insurance (LMI). There are certain waivers that are available at Lenders discretion for specific occupations.

Cross-collateralisation is the process of using collateral from one loan as the security for an additional loan(s).

Cross collateralisation can be used almost any time two properties are involved and the equity in one is required to refinance/purchase a second or third property. A common situation where cross collateralisation occurs is when a homeowner wants to use equity in their owner-occupied house to purchase an investment property. Using cross collateralisation, the loan setup for this scenario will look like this:

Disclaimer: This information is current as at the time of each QRG publication. It is a general information

guide only.