What is LVR and LMI?
LVR stands for loan-to-value (or sometimes loan-to-valuation) ratio. It’s a percentage figure that is calculated by dividing the loan amount by the value of your property expressed as a percentage. For e.g. if you borrow $150,000 and your property is valued at $400,000, the LVR is 37.5% (150,000 divided by 400,000 multiplied by 100%).
Generally the lower the LVR the lower the risk is to the bank in lending you money. Bank’s consider LVR’s over 80% to be more risky.
Lenders Mortgage Insurance (LMI) will need to be paid by you if you borrow more than 80% of the property’s value. LMI is insurance that the bank takes out to protect the bank against the risk of not recovering the full loan balance should you not meet your loan repayments and your property is sold, and there is a shortfall between what is owed on the loan and what the property sells for.