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LVR stands for Loan to Value Ratio and it is calculated by dividing the value of the property by the loan amount. The value of the property is determined by the lenders valuation process which is usually the lesser of the purchase price or valuation conducted by the lenders valuer.
The ratios are used to calculate risk and although most lenders will have limits to what their LVR is, many lenders will lend owner occupiers
up to 95% LVR.
In a big picture sense overall average LVR’s are assessed as part of the determination of a lenders own credit rating. In order to lend above lending policy LVR’s lenders often insure their risk with a Lenders Mortgage Insurance Policy. In order to determine you may be able to borrow against the value of your property.
To work out the LVR, divide the amount you are
borrowing into the value of the property e.g.$120,000 (Loan Amount) $250,000 (Property Value) = 48% LVR
To a lender, a higher LVR is a riskier proposition than a lower LVR.
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