Here is the transcription of the video above:
Hi my name is Mark Bonnici and i’m a qualified mortgage broker with MFAA. This is just a very short video on what the term LVR means and why it is a useful term in the lending process. LVR means loan to value ratio and basically it is the borrowing amount that you want to borrow as a percentage of your overall security. So just as an example, if you’ve got a home worth $500,000 and you want to borrow $400,000 that means that $400,000 is 80% of the, your security value. So the loan to value ratio, then that ratio, the percentage of the loan as a percentage of your overall security is 80%. And the lender looks at that in terms of a risk assessment.
Anything under 80% LVR, the banks are generally quite happy to lend you the money. When it gets over that 80% mark then they see that as a higher risk and therefore they’ll ask you to pay an insurance to the lender which is a lenders mortgage insurance(LMI). So that LMI is the lenders mortgage insurance to protect the lender, not you, for the loan. And so that LVR is an important factor, and you’ll find that some lenders also, that the lower the LVR. So for instance if you’re doing a refinance and your, the value of your loan, the loan amount is less than say 60% or 70%, of the value of your house, then you’ll get a prime rate as well. So keep that in mind, that’s what LVR means. Thank you.
Here are Answers to Common Questions People Ask
Do banks prefer to value the property?
Depending upon how high your LVR is, every bank has different procedures of calculating LVR. However, lenders do not always value the property because many banks do not prefer it when it fulfils a particular condition. And the other banks require also don’t prefer to Full Valuation. Instead, they use restricted assessment, AVM, or desktop valuation.
What is the Bank Valuation Criteria?
1. Your loan must be under $800,000.
2. You must be the one who is purchasing the property.
3. The property must not be a new building.
4. Your LVR must be 80% or below.
5. You must have purchased the property through a registered Real state agency.
6. You must have all of your income evidence.
7. Your property must be in the Regional Centre or Capital City.
8. You must have no relationship with the seller.
How Much LVR Can I Borrow Maximum?
The loan which bank will provide will be determined by evaluating your monthly income, credit history, your property location, and it also depends on the amount you need for home. Those applicants who are in a weak financial condition can get up to 60% LVR. However, the applicants with the Strong financial situation will qualified to get 90%-95% LVR, and those who are in stable financial condition will get up to 80% LVR.
Can I borrow 100% LVR?
Yes, you can borrow a 100% LVR. But only in ONE CONDITION. The applicant must have the guarantor who is already an owner of his/her property. The guarantor can be a friend or a family member.
However, without a guarantor, you can never be qualified to borrow a 100% LVR.
When does an applicant charge for an LMI?
LMI (Lender Mortgage Insurance) is a risk fee which mortgage insurer charge to lender and a lender pass this to you as an LMI premium. However, the applicants with 80% LVR and lower are required to pay for LMI.
What is High risk LVR?
The LVR with 80% of the property is considered as high risk by lenders. Therefore, the lenders required LMI at this percentage to decrease the risk ratio and the chances of your approval increases because lender will face no loss in case of any fraud.
Why banks restrict LVR?
There might be several reasons to restrict your LVR. But there are some general reasons which usually people face. For example, you want to purchase a house for $400,000 with a loan of 95% LVR, which means $375,000. For a lender, this is a high-risk case. And if you are credit default history, then you will only able to get 80% or 90% LVR.
Also, if the property you want to purchase is difficult to sell, then the lender will further reduce your LVR.
Following are the scenarios in which there are chances that your LVR might get reduced:
1. If your property is in a remote location.
2. It is exceptional.
3. If your property is listed on heritage properties, display homes, or serviced apartments.
If the above restrictions apply to your property, then it will take six months to sell your property.