Loan to Value Ratio - What Is It & How Can It Help You?
Simply put loan to value ratio(LVR) is a ratio that the banks and financial institutions use to assess the level of debt that a certain asset should have.
What does it mean if a bank will give you a HIGH loan value ratio when you are applying for a loan on a particular investment property?
What does it mean if a bank will only give you a LOW loan value ratio when making a morgtage application.
What Does A High LVR Mean To You?
If you can get a high LVR then that means that the bank or financial institution is willing to loan you more of the purchase price of your property.
For example, the loan to value ratio for property is higher than the LVR that banks will give for say shares.
So for example say you wanted to purchase a $100,000 investment.
A bank will be happy to lend you $80,000 on a $100,000 property giving an LVR of 80%
If you were investing in shares the margin loan (LVR) they would give you is usually about 50% and some times less. This would give you an LVR of 50% or less! So that means they would only loan you $50,000 of the $100,000 worth of shares you wanted to buy.
Lenders Mortgage Insurance - Overcome a Low LVR?
If you are given a low LVR by the bank when applying for a loan, then they are giving you a measure of what the level of debt or risk on that property that they are willing to support.
In the case of property, this means that you will either need to fund the difference out of your available cash or find further finance to purchase.
The alternate method to overcoming the situation where you are given a low LVR is to use lenders mortgage insurance.
The Differences between Financial Institutions
There are differences between financial institutions.
Different banks and other mortgage originators will use different valuers and have different methods of assigning or determining value.
Some will be more keen to get your business and so be willing to offer you a higher LVR. This is better for you.
So shop around when looking for a loan and find the lender that will give you the best loan to value ratio that you can get and preserve your available capital reserves.
Return From Loan to Value Ratio To Real Estate Investment Financing Or go to Freedom Steps With Property Investing |
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