Home Loans Explained
Video series to help you understand mortgage terms, mortgage process and how a mortgage works.
What is LVR?
In this video:
- What LVR means
- What LVR is acceptable
- Restrictions for high LVR
- Benefits of high LVR
What is LVR?
LVR stands for loan to value ratio. It’s the percentage of the house purchase price that you are getting in lending.
For example, if you are buying a $500k house and you have a 20% deposit, which is $100k, the LVR is 80%, because your $400k loan is 80% of the $500k purchase price.
Banks prefer you to have a 20% deposit or more so the LVR is 80% or lower. But you can get a home loan with a smaller deposit and a higher than 80% LVR.
For example, if you have a 10% deposit, your LVR would be 90%.
Keep in mind there are 3 restrictions on these types of loans.
1. The bank will charge a fee or slightly higher interest rate called LEP or LEM.
2. Banks require a registered valuation, which usually costs about $700.
3. You have a reduced ability to get a pre-approval. Many banks want to wait until you have an offer accepted on a house before looking at a high LVR home loan application.
Despite these restrictions, there are 3 reasons why we recommend high LVR home loans to buyers all the time.
1. With the right structure and repayment strategy, a LEM can be removed after 1 or 2 years because the loan has been paid down quickly with the right advice.
2. The registered valuation fee is small compared to the asset you are buying.
3. Banks are approving high LVR home loans all the time, so it is a great way into homeownership.
- To understand more, watch 5 Pros and Cons for a 10% First Home Deposit.
Learn about the property professionals you need on your team
To build wealth with property you need the right team. Find out how conveyancers, surveyors, accountants and more fit into the property puzzle.
Better understand home loans and how they work
Find out what LVR means, how to use your KiwiSaver as a deposit and more.