How To Calculate LVR With Equity – Money Advice Experts in Services

When it comes to real estate and property investment, understanding your Loan-to-Value Ratio (LVR) is crucial. LVR is a financial term used by lenders to determine the risk level of providing a loan to a borrower. It is calculated by dividing the amount of the loan by the appraised value of the property. The higher the LVR, the riskier the loan is considered by the lender. However, if you have built up equity in your property, you may be able to lower your LVR and potentially secure better loan terms. In this article, we will explore how to calculate LVR with equity and why it is important for property owners and investors.

The Basics of LVR and Equity

Before we delve into calculating LVR with equity, let’s first understand the basic concepts of LVR and equity. As mentioned earlier, LVR is the ratio of the loan amount to the appraised value of the property, expressed as a percentage. For example, if you are borrowing $300,000 to purchase a property that is appraised at $400,000, your LVR would be 75% ($300,000/$400,000 x 100). On the other hand, equity is the difference between the appraised value of the property and the outstanding loan amount. In the above example, if you have already paid off $100,000 of the loan, your equity in the property would be $100,000.

Calculating LVR with Equity

Now, let’s see how you can calculate your LVR with equity included in the equation. The formula for calculating LVR with equity is:

LVR = (Loan Amount – Equity) / Appraised Value of the Property x 100

Using the example above, let’s say you have paid off $100,000 of the loan, and you are looking to refinance your property. Your new loan amount would be $200,000, and the appraised value of the property remains at $400,000. Plugging the numbers into the formula:

LVR = ($200,000 – $100,000) / $400,000 x 100

LVR = $100,000 / $400,000 x 100

LVR = 25%

Why LVR with Equity Matters

Calculating LVR with equity is important for several reasons. Firstly, a lower LVR indicates to lenders that you have a higher stake in the property, which may make you a less risky borrower. This could potentially lead to better loan terms, such as lower interest rates or higher borrowing limits. Secondly, knowing your LVR with equity can help you determine if you have enough equity in your property to access additional funds through refinancing or a line of credit. Lastly, monitoring your LVR with equity over time can help you track the growth of your equity and make informed decisions about your property investments.

Factors to Consider

When calculating your LVR with equity, there are a few factors to keep in mind. Firstly, the appraised value of the property can fluctuate over time due to market conditions or property improvements. It is important to regularly reassess the value of your property to get an accurate LVR calculation. Additionally, the amount of equity you have in your property can be affected by your repayment schedule and any changes in property value. Be sure to stay on top of your loan repayments and monitor the property market to maximize your equity position.

Conclusion

Understanding how to calculate LVR with equity is essential for property owners and investors looking to optimize their financial position. By lowering your LVR through building equity in your property, you can potentially unlock better loan terms and access additional funds for future investments. Keep track of your LVR with equity over time and make informed decisions to grow your property portfolio and achieve your financial goals.

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