If you’re looking to buy your first home, you may have come across the acronyms LMI and LVR, especially if you’re working with a smaller deposit. So what exactly do they mean? And how will they affect you?
What is Loan to Value Ratio (LVR)
Generally, you’ll need to take out LMI in a borrowing scenario where there’s a Loan to Value Ratio (LVR) of 80% or more. Lenders calculate your LVR by dividing the amount of your home loan by the value of your property. So if your property is valued at $600,000 and your home loan is $480,000, your LVR is 80%.
(Loan Amount / Purchase Price) x 100%
Ex. Purchase price $600,000 Loan amount $480,000, LVR is 80%
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) usually applies to borrowers who are taking out loans for more than 80% of the value of a property. As its name suggests, LMI covers the lender if you’re unable to pay back your home loan.