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When dealing with the realm of property lending, the numbers on your loan speak volumes. One of the most important statistics in this realm might be your Loan-to-Value Ratio (LVR), a calculation that operates behind the scenes to dictate the conditions of your lending scenario. When you're already applying for a loan （贷款） or considering refinancing, LVR is one of the only statistics that can turn your entire balance of application balance upside down, often without you even realising it.
The Math Behind LVR
LVR is a figure, but not some fancy finance method. The math is simple but has power. To find this figure, you divide the amount of your loan by the current value of your property. Then multiply by 100 to express it as a percentage.
LVR = (Loan Amount ÷ Property Value) × 100
This equation is the basis for all sorts of decisions, ranging from internal lenders' lending policies to potential regulatory needs. But the arithmetic itself is straightforward, even if the consequences are not.
Step-by-Step Calculation of the LVR Formula
Find the Actual Loan Amount
This is not your estimate of your rough budget or your amount of pre-approval. Use the real figure you plan to borrow. It can be money to build, money to buy, or refinancing figures. Rounded numbers won't cut it here—accuracy will.
Determine the Current Property Value
Rely on the seller's asking price or an estate agent's sales talk at your own risk. Use an appointed valuer or a bank-appointed valuer. When you refinance, most lenders will insist on a new valuation even if you have owned the property for years.
Run the Calculation
Plug the loan value and property valuation into the equation. Insert the same unit (e.g., dollars), and be careful with rounding errors if you have multiple valuations or terms of condition.
Example:
Loan Value = $420,000
Property Value = $525,000
LVR = (420,000 / 525,000) × 100 = 80%
This solution tells you that your loan is 80% of the property's current value.
LVR and the Impact of Market Volatility
Real estate markets are not static. Suburbs rise and fall in value due to shifting demand, infrastructure developments, and broader economic changes. LVRs are sensitive to this. If the market dips and your property value decreases, your LVR rises—even if your loan balance remains unchanged. This can have major implications if you’re refinancing or planning to redraw equity.
It also implies that a purchase of property at a time of price peak can lead to a higher LVR than expected, which could push the borrowers into a less desirable lending band.
LVR Adjustments Over Time
Your fixed monthly repayments are not fixed, but your LVR is not either. It changes:
Through Principal Repayments: Each dollar that goes towards your loan principal reduces your loan and enhances your LVR.
Through Market Appreciation: As your value increases, so does your LVR, without any extra payments.
With Further Borrowing: Redrawing or advancing the loan advances the loan size, often over key levels.
Monitoring your LVR annually allows borrowers to work out whether they can or cannot refinance their loan, consolidate debts, or arrange alternative lending.
Deposit Size and LVR
Your deposit decides your original LVR. Consider two examples of a $700,000 home:
Scenario A: $140,000 deposit → $560,000 loan → LVR = 80%
Scenario B: $70,000 deposit → $630,000 loan → LVR = 90%
Even though the property value is the same, LVRs are quite different, which can place borrowers in other assessment classes internally within a bank. This affects the way lenders perceive your risk profile and, in most instances, leads to internal escalations or extra requirements.
The Role of LVR in Refinancing
LVR is not just for new property purchases. Refinancing also hinges heavily on this figure. In refinancing, your property’s current value is reassessed to determine how much equity you’ve gained.
Suppose a property bought five years ago for $500,000 is now worth $650,000. If your remaining loan is $325,000, the LVR is:
LVR = (325,000 ÷ 650,000) × 100 = 50%
That 50% LVR provides more flexibility—whether it's fixing a better rate, releasing equity to make renovations, or consolidating other debt into an able deal.
Hazards of Underestimating LVR
Underestimating your LVR is not an error in technique—it's a strategic error. If you believe that your LVR is lower than it indeed is, you may:
Negotiate contracts with incorrect assumptions.
Be surprised by rejection or reassessment at loan processing.
Trigger cost obligations like lenders' insurance due to ill-advised loan structuring.
Borrowers need to account for appraisal variation, cautious bank valuations, and the impact of post-settlement charges when approximating their actual LVR.
Case Study: Two Borrowers, Two Futures
Borrower A applies for a $500,000 loan for a $620,000 property.
Borrower B applies for a $500,000 loan over a $590,000 property.
Borrower A's LVR = (500,000 ÷ 620,000) × 100 = 80.65%
Borrower B's LVR = (500,000 / 590,000) × 100 = 84.75%
They are both borrowing the same, yet because property prices are slightly different, their LVRs fall into different categories. The nominally minor variation can have effects on overall cost structure, assessment timing, and internal banking procedures.
Equity Releases and Reverse LVR Calculations
If you're to release equity from your existing property, you'll need to reverse the formula:
Available Equity = Property Value × (Maximum Acceptable LVR %) – Existing Loan Balance
If your property value is $800,000, your lender will permit 80% equity release, and your existing loan balance is $460,000:
Available Equity = $800,000 × 0.80 – $460,000 = $640,000 – $460,000 = $180,000
This $180,000 is your theoretical drawdown capacity, though lenders would restrict access based on service capacity.
LVR as a Measure of Borrowing Discipline
Unlike interest bills or loan （贷款） amounts, LVR shows your position vis-à-vis the market value of an asset. Hence, it is a self-discipline measure, allowing you to know when and how much to borrow. A persistent high LVR may indicate over-leveraging, while a declining LVR over time indicates sound asset accumulation and risk management.
In Summary
LVR may not be leading the front in conventional borrowing debates, but it's central. Calculating it with minimal effort, and with the advantage of knowledge, along with complex financial decisions, is key. You may be facing your first home mortgage, re-gearing your third investment, or employing a portfolio, the LVR is not a number—it's a sign of strategy, timing, and caution.
For new guidance, case-by-case examination, and valuation factors, always go to your lender, FinanceEazy. Watching out and being familiar with your LVR keeps your loan（贷款）options focused and forward-looking.
