How you could shrink your home loan rate as property prices boom

A small model home is being held between a someone's fingers after being shrunk with a home loan interest rate shrink-ray
If only there were a home loan shrink-ray to shrink your rate with...

Australian homeowners could be sitting on the opportunity to blast their home loans with a shrink-ray after national home prices rose nearly 40% in just four years. 

Home values soared 40% nationally since March 2020, with median values up 35% in the capitals, and 53.6% in the regions, according to property data and insights group, PropTrack.

It’s easy to overlook the benefits of capital growth if you don’t intend to sell any time soon. 

However, rises in the value of your home can lower your loan-to-value ratio (LVR), meaning you could access a lower interest rate and save money. 

How capital growth can get you a lower home loan interest rate 

Home loan lenders typically offer lower interest rates to those with lower LVRs because they perceive them as less risky. They may base the interest rate offered on which LVR tier you fit into. 

For example, if you borrow 90% of the property value, you’re in a higher-risk, 90% LVR tier and may be charged a higher interest rate than someone in a less-risky, 80% LVR tier.

One of the main factors in determining your LVR is the property value. If the property value goes up and the size of the loan continues shrinking, your LVR will decrease. 

How much has your home value changed over time?

While according to PropTrack the median home value in capital cities has increased by 35% since March 2020, the value of your home will most likely have changed at a different pace. 

In March 2020 the median capital city home value was $615,385, according to PropTrack. Assuming you bought at this price with a 20% deposit of $123,077, you would have borrowed $492,308. This gives you an LVR of 80%. 

It’s now March 2024, and your property has increased to $832,000 (about 35%). In that time, you’ve paid off almost $50,000 on your loan, accounting for interest. If you were to get a new property valuation from your lender, your LVR would decrease dramatically.

In fact, according to our calculations, your LVR would have dropped to 53%, meaning that you could qualify for <60% LVR interest rates.  

As previously mentioned, this scenario won’t necessarily apply to your situation. It also doesn’t account for your lender’s valuation compared to its market value. It simply serves as an illustration of how changing property values can influence your LVR.

So, what sorts of interest rates do lower LVRs get you anyway? 

Average interest rates by LVR tier in 2024

For owner-occupiers, paying principal & interest on a variable home loan of $400,000. Correct as at 10 April 2024. 

  • 95% LVR: 7.36% p.a. 
  • 90% LVR: 7.10% p.a. 
  • 80% LVR: 6.83% p.a. 
  • 70% LVR: 6.79% p.a. 
  • 60% LVR: 6.75% p.a. 

As you can see, a lower LVR can correspond to a lower average home loan rate. So, if you’ve had the same home loan interest rate for the past few years, it might be worth getting a property valuation done to see if you’re sitting on an opportunity to zap your rate.

You might also want to refinance your home loan to a more competitive lender, which you can read about in our refinancing guides

Keep up with the market by checking out the latest home loan news, or browse through Mozo’s home loan resources.  

Home loan comparisons on Mozo - last updated 27 May 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    6.25% p.a.
    fixed 3 years
    6.20% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Discount Variable Home Loan

    Owner Occupier, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a. variable
    6.01% p.a.

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

  • Discounted Home Value Loan

    Owner Occupier, Principal & Interest, LVR 70-80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.09% p.a. variable
    6.09% p.a.

    Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Settlement fee waived on new borrowings from $50,000 (T&Cs apply).


* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.