# Explaining Loan to Value Ratios

LVR, Loan to Value Ratio has huge implications on your home loan. Understand why and what you can do about it

You may have heard the term loan to value ratio (LVR) used in the mortgage industry. However, many people don’t understand what this means or how it affects them. Our experts here at UNO are going to explain LVR and give you an idea of how lenders calculate it.

### What is LVR?

The LVR attached to your home loan is a proportional number that measures the amount of money you borrow against the actual value of the home. Lenders use LVR to figure out how much risk comes with the loan. Thus, it is a key metric when it comes to the lender’s decision on whether to approve your home loan application. As a general rule, the higher your LVR, the more risk you present to a lender.

### How is LVR Calculated?

Your lender will examine the property’s value while taking your deposit into consideration. The lender divides your home’s value against the deposit to figure out how much you need to borrow. Let’s look at a couple of examples involving a \$500,000 property and two different deposits. Our first example assumes you have raised a deposit of \$125,000, meaning you need to borrow \$375,000. Your lender uses the following calculation to figure out your LVR: 500,000 – 125,000 = 375,000
(375,000 / 500,000) x 100 = 75
LVR = 75% This is an attractive LVR as it presents less risk to the lender. It shows you have saved well to contribute a high deposit, thus the lender can trust you to continue that level of financial commitment. Now, let’s halve the deposit to \$62,500. The sum then becomes: 500,000 – 62,500 = 437,500
(437,500 / 500,000) x 100 = 87.5
LVR = 87.5% This is a much higher LVR, which shows that you represent more risk to the lender. Ideally, your home loan should carry an LVR of 80% or below if you want to stand the highest chance of getting approval. Any loan with an LVR exceeding 80% usually carries extra fees, the most common of which is Lender’s Mortgage Insurance (LMI). Lenders use LMI to protect themselves against you defaulting on the home loan.

### Other LVR Risks

Beyond the extra fees, you will face other issues when you have a high LVR. For one, you will have to deal with higher monthly repayments because of your lower deposit. While this may not present an issue immediately, these higher repayments could cause problems if you run into financial trouble later on. Waiting until you save a larger deposit may save you a lot of hassle in the long run.

### Other Options

Spending extra time saving a deposit isn’t always an option. That’s where having a guarantor could help you. A guarantor is usually a parent or family member who uses the equity in their own home to provide a security for your home loan. This allows you to take out a home loan without saving a deposit, but there are some risks attached. If you default on the loan, you cause problems for your guarantor. They will have to pay what you can’t, or risk getting a black mark on their credit report.

### What to do next

Now you know about LVR, you can understand how lenders think when they assess your home loan application. If you want to move forward with your loan application, take the following steps:

• Find out more about LVR.
• Use our calculator to find out how much you can borrow.
• Book in a quick call with our customer care team to find out how LVR may affect you. This information is general in nature and you should always seek professional advice when making financial decisions. This information in this article is general only and does not take into account your individual circumstances. It should not be relied upon to make any financial decisions. UNO can’t make a recommendation until we complete an assessment of your requirements and objectives and your financial position. Interest rates, and other product information included in this article, are subject to change at any time at the complete discretion of each lender. Book a call in with UNO

## Need help with your home loan?

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TESTIMONIALS

## What our customers are saying

Sally Mackenzie
February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
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Rod
February 13, 2024
Scott and his team were just A-mazing. We felt supported through the whole process with the greatest quality and care. Every question answered right in time, or even before we asked. The process was smooth and we got the best outcomes we could have wished for.
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Angela Biddle
February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
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Fotis Bikas
January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
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Tomoharu Matsui
January 11, 2024
Michael Parsons helped me a lot when it's difficult to establish my capabilities in loan.
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Gillian Kearon
January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
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Taner T
December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
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Karaipu Brown
December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
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Chris Anderson
December 18, 2023
Just completed my first loan with UNO which was so much easier than with other other brokers I have used in the past. Our broker MIKE PARSONS always had time for me and broke things down for me in the simplest of terms and was very patient with my silly questions and my constant changing of plans. I wish I had used them in the past as I wouldn't be in the situation I'm in now. Can't recommend them highly enough. Thanks UNO and Thanks MIKE 😊
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Stephen Broomfield
December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
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Tarek Hussain
December 6, 2023
Can't thank Amy enough for her hard work, dedication and determination on getting multiple loans completed for me. I wouldn't hesitate in recommending Amy and the Uno team to any of my associates. Will definitely be back in the near future!
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Linda
November 3, 2023
If you’re looking for a trustworthy, thorough, reliable & knowledgeable Mortgage Broker then you must call Anita Callaghan! I can’t even imagine how stressful this process would’ve been without her. Anita went above and beyond to make sure she answered every question, responded to every text (even on weekends/after hours), and followed up on every detail to ensure we had all the info we needed. Anita is a true people person who is warm, empathetic, kind and supportive. You can tell she loves helping people and loves what she does, which is probably why she’s so good at it! Can’t thank you enough Anita, or recommend you more highly! You’re the best!
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