# What is LVR and how is it calculated

Loan to value ratio (LVR) is a term you will come across when applying for a home loan. It is the ratio of the loan amount against the value of the property you have selected (and used as security for the loan). LVR is used to determine whether or not lender’s mortgage insurance will be needed and what interest rate you are entitled to.

## How is LVR calculated?

LVR is calculated by dividing the mortgage amount by the value of the property you are purchasing. We’ve put an example together below to help you understand how LVR is calculated.

Jane and Chris find out their LVR

Jane and Chris are purchasing a new home for \$450,000 and will be using \$70,000 in cash as a deposit. This means the actual mortgage the couple need is \$380,000 (excluding fees and charges). To find out their LVR Jane and Chris need to divide the mortgage amount (including fees and charges) by the value of the property and then multiply this amount by 100. By doing this the couple have found out their LVR is 84%. Because their LVR is above 80% Jane and Chris will need to pay lenders mortgage insurance. This can  be added to the total mortgage amount, however it will increase their overall LVR as a result.

## How can I decrease my LVR?

The best way to decrease your LVR is by saving a bigger amount for a deposit, tightening your budget when it comes to finding a property to purchase, or by doing both. If you are wanting to save more for a deposit there are lots of ways to do so, from revising your household budget, to saving on everyday purchases, and by keeping your money in a high interest savings account.

The way you structure your loan can help to reduce your LVR. For example, you may be able to use equity in an existing property to increase your deposit amount. The bigger deposit you have the smaller the mortgage will be, which will affect your LVR.

Another option to consider is taking advantage of a guarantor option, such as the Heritage Family Guarantee loan. This loan allows immediate family members to help you purchase a home without them having to provide cash as an upfront deposit. Instead, the bank takes a mortgage over the guarantor’s property which is used as equity to assist with purchasing the new property. The maximum LVR for the primary loan is 80% and 70% against the guarantor’s security. These LVR restrictions not only help to ensure we are lending responsibly but it also means there is no need to pay lender’s mortgage insurance. An LVR under 80% generally attracts better interest rates.

## So, what do I need to do?

It’s important to understand what your LVR is looking like before you apply for a home loan. This will help you to budget for both the possibility of having to pay lender’s mortgage insurance, and the interest rate you will be charged.

To find out more talk to one of our lending specialists. Enquire online, phone 13 14 22 or visit in branch.

* Home loan comparison rate based on a \$150,000 loan over 25 years.  Fixed loan comparison rate applies only for loans with an LVR of 80% or less and a loan amount of \$150,000 to \$249,999.  WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Interest rates are on a per annum basis. Rates are correct as stated and subject to change without notice. Rates shown are for new loans and do not apply to switches or internal refinances.

Home Advantage Variable rates include discounts shown from the Standard Variable rate. Home Advantage Living Equity rates include discounts from the Living Equity rate. Discounts are based on total lending in the package. Discount Variable LVR rates are for new lending and include discounts from the Discount Variable Loan Rate.  Discounts are not available in conjunction with any other interest rate discount or special offer. All fixed rates are fixed for the period stated and revert to the variable rate applying at expiration of the fixed term. To approved applicants only. Conditions, criteria and fees apply.

Loan to Value Ratio (LVR) is the loan amount divided by the value of your security property (determined by Heritage Bank at assessment), multiplied by 100. Owner Occupied loans have a maximum LVR of 95%, Investment loans have a maximum LVR of 80% and Living Equity has a maximum LVR of 80%. Heritage is not accepting any new investment applications until further notice.

This advice has been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs.

Generate a personalised Key Fact Sheet based on your loan amount, term and repayments. This tool is provided to help you compare home loans from Heritage with other financial institutions.

The information provided is intended as general information only. Blogs have been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs. You should consider obtaining personal investment, taxation and/or legal advice before making any decision.  Please consider the Guide to Heritage Deposit Products and Guide to Heritage Credit Card Products (available in-branch, or at www.heritage.com.au) before you decide whether a product is right for you. All loans and credit cards are subject to application and approval. Conditions, criteria and fees apply and are subject to change without notice.