TL;DR — Key takeaways
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If you’ve started researching home loans, you’ve almost certainly come across LVR. Lenders use it constantly, brokers refer to it in every assessment, and it shows up in loan comparison tables across every bank’s website. But what does it actually mean for you, and why does the number matter so much?
LVR stands for loan-to-value ratio. It is the percentage of a property’s value that you are borrowing. Understanding your LVR before you apply helps you see clearly what you can borrow, what it will cost you, and what you need to do to get to a stronger position. This guide covers all of it in plain terms.
What is loan-to-value ratio (LVR)?
Your loan-to-value ratio is the amount you borrow expressed as a percentage of the property’s purchase price or valuation. It tells the lender how much of the property they are financing versus how much of your own money is in the deal.
A lower LVR means you have more equity in the property from the start. A higher LVR means the lender is carrying more of the risk. That risk directly affects your interest rate, your loan eligibility, and whether you pay Lenders Mortgage Insurance.
How to calculate your LVR
The formula is straightforward:
LVR = (Loan Amount / Property Value) x 100
| Property value | $600,000 |
| Deposit | $120,000 (20%) |
| Loan amount | $480,000 |
| LVR | 80% ($480,000 / $600,000 x 100) |
Use Rateseeker’s borrowing power calculator to model different deposit and loan scenarios for your situation.
In this example, an 80% LVR is the threshold most lenders use as their standard benchmark. If your deposit were $60,000 instead of $120,000, your loan would be $540,000 on a $600,000 property, giving you an LVR of 90%. That difference has real consequences.
Why LVR matters: the 80% threshold and LMI
The most important number in LVR is 80%. When your loan-to-value ratio exceeds 80%, most lenders require you to pay Lenders Mortgage Insurance (LMI). LMI protects the lender, not you, if you default on the loan. Despite this, you are the one who pays for it.
According to MoneySmart, LMI can cost anywhere from a few thousand dollars to over $20,000 depending on your loan size and LVR. It is typically added to your loan balance, which means you also pay interest on it over the life of the loan. That makes the true cost higher than the headline premium suggests.
APRA’s lending standards set the framework that guides how authorised lenders manage LVR risk. These rules are part of why the 80% threshold exists across virtually every major lender in Australia.
How lenders use LVR beyond the 80% rule
LVR is not just an LMI trigger. Lenders use it to set interest rate pricing tiers across their entire product range. A borrower at 70% LVR will often access a lower rate than one at 85% LVR, even with the same income and credit profile. This is because the lender’s risk exposure is materially different.
Your LVR also affects which loan products are available to you. Some lenders restrict interest-only loans, offset accounts, or fixed rate options above certain LVR thresholds. Understanding where you sit before you apply means you can compare products that are actually available to you, rather than being surprised after the assessment.
Broker advantage
Different lenders have different LVR policies and price their tiers differently. A broker who accesses 40+ lenders can find the one whose LVR pricing works best for your specific deposit and loan size. That comparison isn’t available if you go direct to one bank. According to the MFAA, brokers write around 74% of all new residential home loans in Australia for exactly this reason.
How to reduce your LVR before you apply
If your current LVR is higher than you’d like, there are three practical ways to bring it down before you apply.
1. Save a larger deposit
The most direct route. Each additional dollar you save reduces the loan you need and improves your LVR. Even moving from a 90% to an 85% LVR can meaningfully reduce your LMI cost and may open up better rate options. Use the borrowing power calculator to model what different deposit amounts do to your position.
2. Use a guarantor
A family member (typically a parent) can offer the equity in their own property as security for part of your loan. This reduces your effective LVR below 80% without you needing a larger cash deposit, which means no LMI. Not all lenders offer guarantor loans and the eligibility rules vary, so speak to a broker to assess whether this route suits your family’s situation.
3. Target a less expensive property
If your savings are fixed, buying at a lower price point improves your LVR immediately. On a $500,000 property with a $100,000 deposit, your LVR is 80%. On a $600,000 property with the same deposit, it rises to 83.3%. The difference triggers LMI and a higher rate. Adjusting your price range is sometimes the most practical path to a stronger borrowing position. See Rateseeker’s first home buyer guide for more on planning your deposit strategy.
Don’t forget stamp duty in your deposit calculation
Your deposit needs to cover your upfront costs as well as the equity component of the purchase. Stamp duty, conveyancing, building and pest inspections, and other settlement costs come on top of your deposit. If you spend your stamp duty budget on the deposit, your LVR will be higher than you planned. Budget for all upfront costs separately.
Find out your LVR and what it means for your loan. Use our borrowing power calculator to model different deposit scenarios, then speak to a broker who accesses 40+ lenders to find the best fit for your LVR. Borrowing Power Calculator |
Frequently asked questions
An LVR of 80% or below is generally considered strong. It means you have at least a 20% deposit, which avoids Lenders Mortgage Insurance and typically qualifies you for the most competitive interest rates. Some lenders will go up to 95% LVR, but the higher the LVR the more it costs you overall.
Divide your loan amount by the property value, then multiply by 100. A $480,000 loan on a $600,000 property gives an LVR of 80% ($480,000 / $600,000 x 100 = 80%). The lower the result, the lower the risk for the lender and the better your likely interest rate.
Most lenders will require you to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default. LMI can cost several thousand dollars and is typically added to your loan balance, so you also pay interest on it. Some first home buyers avoid LMI through the Home Guarantee Scheme with as little as a 5% deposit.
Yes, but your options narrow significantly. Fewer lenders will go above 90% LVR and those that do may require proof of genuine savings, higher LMI premiums, and will offer fewer product choices. A guarantor loan is one way to reduce your effective LVR without needing a larger cash deposit. A broker can help you identify which lenders are suited to your situation.