Property finance is any loan or form of finance that is secured by property. It can be used to purchase property, develop or construct on existing property, as security for a short-term loan or to refinance existing debt. Property finance can be short-term or long-term, depending on your requirements.
Property finance – loans secured by land and/or real-estate property – is the most common form of finance in Australia. This is because people who own property can use it as security. And property is one of the most useful forms of security for finance since it is easy to value and tends to hold its value.
Property finance tends to be long-term (up to 30 years), but short-term property finance options are also available.
Property finance is found in many types, for example:
If you are obtaining property finance, lenders will need to determine how much you can borrow, and how much you can afford to repay.
To know how much you can borrow, lenders use a common metric called Loan to Value Ratio (LVR). LVR is the ratio of the loan amount to the valuation of the property.
For example, if the valuation of your property is $10 million and you want to borrow $8 million, your LVR would be 8,000,000/10,000,000 = 80%
The maximum LVR will depend on the type of property you are using as security for your loan. For example, residential property will have higher LVRs than commercial property or vacant/undeveloped land.
A general rule of thumb is that for residential property, LVRs of up to 80% are available but may be stretched to 90% in certain circumstances. For commercial property, LVRs of 70% are more common, and for more unusual land such as agricultural land, LVRs are more likely to be around 55%.
In addition to determining how much you can borrow, lenders will determine serviceability, your ability to meet all principal and interest payments when they come due.
This is determined by considering your income, including any rental income from the property.
If you do not fit into the qualification criteria, you may still qualify for a different type of loan. Use the online prequalification tool to find out what types of loans you are eligible for.
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