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What is LVR? Loan-to-value-ratios explained

A graphic of a seesaw with a stack of coins perfectly balanced opposite a house.

Your loan-to-value ratio (LVR) is the total amount of money you borrow as a percentage of the total value of the property you’re buying, and an important term to remember when taking out a home loan

For example, borrowing $800,000 from the bank to buy a $1,000,000 property means your LVR is 80%, as you’ve been loaned 80% of the property’s value. 

LVRs aren’t static, meaning they can shift over time, as you gradually pay off the amount you borrowed, or as the value of your property changes.

How to calculate your LVR

Before you calculate your LVR, it’s important to remember that the loan amount (L) you’re applying for will be the property value (V) minus your initial deposit. 

You can calculate your LVR by dividing the loan amount (L) by the property value (V), and then multiplying it by 100 to work out the percentage. 

The LVR formula in graphic form
The formula to calculate your loan-to-value ratio using an example of borrowing $450,000 to purchase a $500,000 property.

Why is your LVR important?

When you go to apply for a home loan, lenders will consider your LVR. That’s because it’s one of the key measurements of your home loan serviceability – in other words, whether the bank thinks you can afford the home loan.

Low LVRs are looked at more favourably by lenders, with LVRs above 80% considered higher risk. 

That means you may have to take out lenders mortgage insurance (LMI), which will add an extra cost on top of your home loan. 

This is why saving up for a 20% deposit is looked at as one of the golden rules of the Australian property sphere because if you don’t need to borrow over 20% of the property’s value, you’re essentially already at an LVR below 80%.

Can you still get a home loan with an LVR above 80%?

While 80% or less LVR is ideal for lenders, that’s not always achievable for everyone. So, thankfully, there are a variety of low deposit home loans available for those with LVRs above 80%. 

Just be aware that the interest rates on offer for those with LVRs above 80% can be a bit higher than for those who borrow less, and vice-versa.

Do lower LVRs mean lower interest rates?

In a lot of instances, the lower your LVR is, the lower your home loan interest rates may be.

Looking at the average variable interest rates across LVR tiers in the Mozo database, lower LVRs appear to correlate with lower interest rates. 

Average variable interest rates for LVR tiers:

Correct as of 14 November 2023, for a $400,000, owner-occupied home loan, paying principal and interest. 

  • 60% LVR | 6.56% p.a. 
  • 70% LVR | 6.60% p.a. 
  • 80% LVR | 6.64% p.a.
  • 90% LVR | 6.95% p.a.
  • 90% LVR | 7.19% p.a.

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Does LVR include stamp duty?

Up-front costs, such as stamp duty and conveyancing, are not included in your total loan. Therefore, these one-off costs do not count when your LVR is calculated. 

How can I decrease my LVR?

Your LVR reflects the amount borrowed as a percentage of the value of the property you’re buying, so if you want to lower your LVR, you can do so by saving up a larger deposit, or by looking at cheaper properties.

Alternatively, you can lower your LVR by using a guarantor. Guarantors are usually family members who agree to put up their home as security on your loan. Importantly, a guarantor doesn't have to use their property as collateral for the entire loan - only the portion you need to reduce your LVR to 80% may be required.  

How does the bank value my property?

If you’re buying a property, refinancing or accessing the equity in your home, your bank will insist on conducting a property valuation. This is so the bank can be confident that if you’re unable to pay back the loan, they can sell the property and recover the amount owed.

The valuation itself isn’t usually done by the bank. Instead, it’s outsourced to an independent valuer, who might inspect the property in person and produce a report based on the location, size and condition of the building.

Others might rely on less time-consuming methods to appraise your property, such as a desktop valuation (comparing data from similar sales) or a restricted assessment (inspecting the property from the street).

Keep in mind that a bank’s valuation is not the same as the market valuation. The former is done for credit assessment purposes, and tends to be much more conservative than the amount the market might deem your property worth when listed.

How is LVR calculated when refinancing?

If you’re refinancing your mortgage, your LVR will look a little different compared to when you first took out a loan. For starters, depending on how far into the loan you are, the outstanding balance will have decreased. On top of that, your property’s current market value might have changed since you bought it. All of this can amount to a different LVR.

Jack Dona
Jack Dona
Money writer

As a Mozo money writer, Jack’s goal is to cut through the jargon and give people the knowledge they need to make better informed financial decisions. With a background in communications and journalism, he brings his creative flair for language to make the world of insurance and money management fun, as well as educational.

* 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.

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