Key Takeaways
If you’ve started researching home loans, you’ve almost certainly come across the term LVR. It stands for Loan-to-Value Ratio, and it’s one of the single most important numbers in your home loan. Your LVR influences whether you pay LMI, what interest rate you’re offered, which loan products are available to you, and even whether your application is approved.
Despite its importance, many borrowers don’t fully understand how LVR works or how to use it strategically. This guide breaks it down in plain language with practical examples relevant to the Australian property market.
LVR is expressed as a percentage and represents the portion of the property’s value that is financed by the loan. The formula is simple: LVR = (Loan Amount ÷ Property Value) × 100.
If you’re buying a $600,000 property with a $120,000 deposit (20%), your loan amount is $480,000 and your LVR is 80%. If your deposit is $60,000 (10%), your loan is $540,000 and your LVR is 90%.
The property value used in LVR calculations is the lender’s assessed value, which may differ from the purchase price. If you buy a property for $650,000 but the lender’s valuation comes in at $620,000, the LVR is calculated on $620,000, potentially pushing your LVR higher than expected.
Scroll table sideways to see all columns →
| LVR Range | What It Means | Impact |
|---|---|---|
| 60% or below | Very low risk | Best rates, all products available |
| 61-80% | Standard risk | Competitive rates, no LMI |
| 81-90% | Higher risk | LMI required, slightly higher rates |
| 91-95% | High risk | Significant LMI, fewer lenders |
| 96%+ | Very high risk | Limited options, guarantee may be needed |
The 80% LVR threshold is critical because it’s the point at which most lenders waive the requirement for Lenders Mortgage Insurance. LMI is a one-off premium that can cost anywhere from $4,000 to $35,000 depending on your loan size. By reaching 80% LVR, you avoid this significant cost entirely.
Beyond LMI savings, borrowers at 80% LVR or below typically access better interest rates. Many lenders offer tiered pricing where the rate improves at lower LVR levels. For example, a lender might offer 6.19% at 80% LVR but 5.99% at 70% LVR. Over a 30-year loan, even a 0.20% rate difference saves tens of thousands of dollars.
The 80% threshold also matters when refinancing. If your current LVR is above 80% and you want to switch lenders, you’ll need to pay LMI again with the new lender (LMI is not transferable). This is why many borrowers wait until their LVR drops below 80% before refinancing.
Your LVR isn’t fixed. It changes as you pay down your loan and as your property’s value changes. Both factors work in your favour over time:
Loan repayments: Each mortgage repayment reduces your loan balance (the principal component), which lowers your LVR. In the early years of a loan, most of your repayment goes toward interest, so the LVR reduction is gradual. As the loan matures, more goes toward principal, and your LVR drops faster.
Property value growth: If your property increases in value, the denominator in the LVR formula grows, reducing your LVR even without extra repayments. For example, if your $600,000 property grows to $700,000 and your loan balance is still $450,000, your LVR drops from 75% to 64%.
Extra repayments: Making additional repayments directly reduces your loan balance and accelerates the LVR improvement. Even small extra payments ($100/week) can dramatically reduce your LVR and total interest over the life of the loan.
Real Client Example
A couple in Grovedale purchased their first home for $520,000 in 2021 with a 10% deposit ($52,000), giving them an LVR of 90% and an LMI cost of $9,800. By 2024, they had paid their loan down to $440,000 and their property had grown in value to $620,000. Their LVR had dropped to 71%, well below the 80% threshold. We refinanced them to a lender offering 0.45% less than their current rate with no LMI required, saving them $2,340 per year in interest. If they had refinanced even six months earlier when their LVR was still 82%, they would have needed to pay LMI again.
Understanding LVR is essential when you want to access equity from your property, whether for renovations, investment, or debt consolidation. The amount of usable equity is calculated based on LVR limits.
For example, if your property is worth $800,000 and you owe $400,000, your total equity is $400,000. However, most lenders will only let you borrow up to 80% LVR without LMI, which means you can access: ($800,000 × 80%) minus $400,000 = $240,000 in usable equity. If you’re willing to pay LMI, some lenders will go to 90% LVR, giving you access to: ($800,000 × 90%) minus $400,000 = $320,000.
This usable equity can be drawn down as a lump sum, set up as a line of credit, or split into a separate loan for investment purposes. The right structure depends on what you’re using the funds for, particularly if the purpose is tax-deductible (investment) versus non-deductible (personal).
Pro Tip: If you think your property has increased in value since purchase, ask your broker to order an upfront valuation before applying for equity release. The valuation costs $200-$400 but gives you certainty about your usable equity before committing to any plans.
What is a good LVR for a home loan?
An LVR of 80% or below is considered ideal as it avoids LMI and typically qualifies you for the best interest rates. However, many Australians successfully buy at higher LVRs using government schemes or family guarantees.
Does LVR include stamp duty and other costs?
LVR is calculated on the property value and loan amount only. However, if you borrow extra to cover stamp duty or capitalise LMI onto your loan, these increase your loan amount and therefore your LVR.
Can I request a revaluation to lower my LVR?
Yes. If you believe your property has increased in value, you can request a revaluation from your lender. If the new valuation is higher, your LVR decreases. This can help you avoid LMI on a refinance, access better rates, or release usable equity.
What happens if my property value drops and my LVR goes above 100%?
This is known as negative equity. While uncomfortable, it doesn’t trigger any immediate action from your lender as long as you continue making repayments. It does mean you can’t refinance or sell without bringing additional funds to settle the loan. Property values typically recover over time, so the key is to maintain your repayments and wait for the market to improve.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
