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Work out your loan to value ratio

There are various factors to take into account when applying for a home loan. One is your loan-to-value ratio, which is a percentage that represents how much of the property's value you'll borrow.


The amount you need to borrow will depend on the property you've got your eye on, how much you earn and your deposit.

You'll need a deposit of at least 5 per cent of the total house cost, but it's best to aim for 20 per cent. Remember that the greater your deposit, the less you will need to borrow.

What is my LVR?

Your loan-to-value (LVR) ratio is expressed as a percentage.

For example, if you've got a deposit of $50,000 and you want to buy a $500,000 home, you'll need to borrow $450,000. Your deposit is 10 per cent of $500,000, giving you a LVR of 90 per cent.

If there is high lending risk, then you'll have to take out Lenders Mortgage Insurance (LMI). It is provided by regulated lenders mortgage insurers. One-quarter of home loans in Australia are covered by LMI.

If you have a LVR of 80 to 95 per cent, this is considered high risk, so Lenders Mortgage Insurance is mandatory. Previously, lenders wouldn't loan to anyone with a LVR of more than 80 per cent, so this insurance can help you get through the hoops to take out a loan.

However, it's important to remember that LMI is to protect lenders, not borrowers, in the instance that a loan can't be repaid.

If you need a cheap home loan, use our mortgage calculator to work out how much you need to borrow. You'll need to consider your budget, your deposit and how long it will take to pay back the loan.

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This information has been prepared without taking into account your individual objectives, financial situation or needs. You should, before acting on this information, consider its appropriateness to your circumstances.