How do you calculate loan-to-value ratio?
Divide the total you owe against the property by its current value. In Australia and New Zealand it's usually called LVR; in the US, UK and Canada, LTV. They're the same thing.
Usable equity is the part of your equity you could borrow against without going over the lender's limit, often 80%. It's the figure that matters if you're thinking of using your home's equity for a renovation or a deposit on another property. The limit is editable because lenders and loan types differ.
How do offset and redraw balances change it?
Money in an offset account (or available in redraw) reduces the balance you pay interest on, but not the loan itself. So the calculator shows two figures:
Lenders generally use the full loan balance for their LVR, so usable equity here is based on the full balance. The effective LVR is closer to your real position: if you used the offset to pay down the loan tomorrow, that's where you'd be. The guide to offset accounts and LVR explains the difference.
Worked example
The pre-filled figures are illustrative: a property worth 850,000, a 520,000 home loan, a 40,000 top-up split, and 35,000 sitting in an offset account.
Of 290,000 in equity, about 120,000 could be borrowed against before reaching 80%. The rest is the buffer lenders want to keep.
Limitations
- The result depends on the property value you enter. A lender will use its own valuation, which is often more conservative than online estimates.
- Usable equity isn't the same as what you can borrow. Lenders also assess your income, expenses and other debts.
- It covers one property. If loans are secured across several properties, add up all the values and all the loans for an overall LVR.
- It doesn't include selling costs or tax, so your equity isn't what you'd walk away with after a sale.
Questions
What is a good LVR?
80% or less is the usual benchmark. Above that, many lenders charge mortgage insurance (LMI in Australia, PMI in the US) or a higher rate. Below 60% often gets the best rates.
Is LVR the same as LTV?
Yes. Loan-to-value ratio (LVR) is the common term in Australia and New Zealand; loan-to-value (LTV) is used in the US, UK and Canada. Both are loans divided by value.
Does an offset account reduce my LVR?
Not for the lender: the loan balance is unchanged. It does reduce your effective LVR and the interest you pay, and you can use it to pay down the loan at any time, which is why the calculator shows both.
How much equity can I borrow against?
Roughly the property value times the lender's maximum LVR, minus what you already owe. With a 900,000 home, an 80% limit and a 500,000 loan, that's 220,000, subject to the lender's valuation and your ability to repay.
How do I find my property's value?
Recent sales of similar properties nearby, an online estimate, or a bank valuation. Update it once or twice a year rather than chasing daily estimates.
