Are you ready to take the exciting step toward buying your first home? Understanding some of the common banking terms can make all the difference! In this newsletter, we’ll break down two key terms that often come up when you’re applying for a mortgage: Equity and LVR (Loan-to-Value Ratio).
💡 What is Equity?
Equity is simply how much of your home you truly own.
Example:
- Purchase Price: $500,000
- Deposit: $100,000
That means you have 20% equity in the property (your deposit divided by the purchase price). The bigger your equity, the stronger your position when borrowing from the bank!
Formula:
Deposit ÷ Purchase Price × 100 = % Equity
🏦 What is LVR?
LVR stands for Loan-to-Value Ratio — it tells the bank what percentage of the property’s value they’re lending to you.
Example:
- Price: $500,000
- Loan Amount: $400,000
Your LVR here is 80% (loan amount divided by purchase price).
Banks usually prefer an LVR of 80% or less, as it reduces their risk and can increase your chances of loan approval.
Formula:
Loan Amount ÷ Purchase Price × 100 = % LVR
🔍 Why Both Matter
When you’re applying for a mortgage, banks focus on both your equity and your LVR.
- Your equity shows how much of the property you already own.
- Your LVR shows how much you want to borrow.
Knowing these numbers helps you plan your deposit and manage your borrowing power effectively.
🚪 Opening the Door to Your First Home
Whether you’re buying your very first home or your next one, understanding these terms is essential for a smooth journey.
Our local financial literacy sessions cover all this and more, helping you make informed choices and buy with confidence.
💬 Interested in joining my next session or want personal suggestions or information? Simply reply to this email or reach out — I'm here to help!
Ready to make your homeownership dream a reality? Let’s talk!
Warm regards,
Kara Northcott
P.S. Don’t forget: the more you know, the stronger your financial future!
027 666 6784
📩 kara@financialconsultant.co.nz
🌐 kara-northcott-financial-consultant.kit.com
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