LVR Rules and LVR Restrictions
LVR stands for Loan to Value Ratio and is the percentage of mortgage to the value of your property. For example, if your house was worth $1,000,000 and you had a $400,000 mortgage – your LVR would be 40%. Note do not confuse it with your equity which would be the opposite, ie 60%.
One of the most common questions we get is trying to understand what the LVR and what LVR restrictions are and your usable equity. So, what is LVR? Well, it’s a Loan-to-Valuation Ratio. So, it sounds confusing, but basically, it’s the amount of loan you have on the value of the property. And it’s trying to figure out how much equity you’ve got on the house. And then basically the way this came about is the bank’s trying to, or the reserve bank trying to limit lending, especially for property investors. So, what does this look like? When you’re working out your LVR, basically you take your mortgage over the value of the property. So, this is really important to determine whether you’re using the GV or the RV or you’re using, like, EVal.
There are lots of different valuation types. We cover that in a different video. So, basically let’s have a look using some numbers. Let’s say your mortgage is 650,000. Your house is valued at 950,000. So, what you do is you take your 650,000, divided it by 950,000, you get 68%. So, this person’s LVR on this property is 68%. Please read on to deep dive into LVR otherwise read this article to learn about all aspects of mortgages.
LVR on family homes
Now let’s say people are asking this question, “Oh, the reason I’m asking about LVR is that I need to borrow more money.” So, generally speaking for an owner-occupied property, your family home, you can go up to an 80% LVR. What that means is you need to keep 20% equity in the house. Often when the bank gives you a mortgage pre-approval it will be conditional on a valuation – this is so they can check what LVR you will end up with. On the topic of conditions, a condition we highly suggest you use is ‘due diligence‘ to check if the property is a good purchase.
This is so the bank is always safe if the property prices dip, they’ve always got a safe buffer if they ever have to force you into a mortgagee sale. It’s basically to protect the bank, but it’s also to protect the banking industry as a whole – if there’s a bit of dip so that there’s not a massive rush of houses for sale, which can bring the values down even more.
LVR for Refinancing a Mortgage
So, let’s say you want to, you know, top up your mortgage, you want to go on holiday, buy a car, consolidate some debts, this is why people refinance. And in this case, a $950,000 property, your family home, with an income servicing a getting a tip, you can go up to 80% lending. So, in this case, it’s 760k. So, to figure out the usable equity, what you do is you take your house value and times it by 0.8, 80%.
And this is the 760k number. So, if you ever got any questions, or you’re a little bit confused about your current equity, or usable equity, or you just want to figure out your LVR options in terms of buying more properties, just flick us a direct message on the website or send me an email, andrew@iRefi.co.nz.
I’m happy to do those calculations for you as long as we know why you’re trying to free up that extra money and what you’ve got planned. So, generally speaking, it’s the property investors that are asking, but if you’re just trying to figure out on your family home, 80% is usually the number. However, you can go high using a non-bank lender.
So, you can talk to us about that, about second mortgages, or caveat loans, or personal loans as well. But for the purposes of this conversation, LVR is the Loan-to-Valuation Ratio. And it’s generally, mortgage divided by the value of your house. And generally, that’ll be under 80%.