Loan-to-value ratio (LVR)
This is one of the most common terms you will hear from your mortgage professional when you talk about home loans. LVR is the ratio of your loan amount to the value of the property you are purchasing.
For example, if you are buying a property worth $400,000 and you want a loan of $380,000, your loan-to-value ratio or LVR will be 95%
Purchase price: $400,000
Loan-to-value ratio (LVR): $380,000/$400,000 x 100 = 95%
Usually, the maximum that any bank will lend you is 95% of the property price.
Lender’s mortgage insurance (LMI)
Lenders consider it a risk when they have to lend you money more then 80% of the property price. They will then insure this risk through a mortgage insurer and they pass on this charge to you in the name of ‘lender’s mortgage insurance’ or ‘LMI’. This is a one off premium you pay your lender for the privilege of being able to borrow more than 80% up to a maximum of 95%.
This insurance fee should not be confused as insurance for your mortgage and will not protect the consumer in any way. This is purely for the banks to protect themselves if you default on your home loan and they have to repossess it.