Mozo guides

What is a loan-to-value-ratio (LVR)?

A 3D graphic of a seesaw with a stack of coins balanced against a house, representing the concept of a loan-to-value ratio.

When you're talking about home loans, a loan-to-value ratio (LVR) is an important term to remember.

LVRs can affect which home loans you are eligible for and what home loan interest rate you pay. 

In this guide we'll cover how to calculate LVR, what a good LVR is, and what you may need to do if your LVR is too high.

What does LVR stand for?

LVR stands for loan-to-value ratio. 

LVR in home loans refers to the money you borrow (the loan), as a percentage of the property's cost (the value).

LVR example

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 borrow, or as the value of your property changes.

How is LVR calculated?

LVR is calculated by dividing the loan you borrow by the value of the property you buy.

Check out the steps needed to calculate your LVR and the LVR formula below. 

How to calculate your LVR: 

  1. Work out the your property value (V).
  2. Work out your loan amount (L) by taking the value (V) and subtracting your deposit.
  3. Divide the loan amount (L) by the property value (V).
  4. Multiply that number by 100 to see your LVR.
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 LVR important?

When you go to apply for a home loan, lenders will look at your LVR 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.

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%.

What is a good LVR?

The lower the LVR, the better. A 'good' LVR might be considered anything less than 80% because they're less risk for the lender. 

Typically, an 80% LVR is safe for the lender. 

LVRs above 80% considered higher risk, which means you may have to take out lender's mortgage insurance (LMI), adding an extra cost on top of your home loan. 

Some lenders, like Sucasa home loans, worry less about your LVR and charging you LMI, and more about your mortgage serviceability. This may mean you might be able to avoid LMI, even if you have an LVR above 80%.

Sucasa Ultra Low Rate home loan
    What's hot
  • 6.30% p.a. (6.58% p.a. comparison rate*)
  • Pay no lender’s mortgage insurance (LMI) when borrowing up to 95%
  • Free extra repayments and redraw facility
  • What's not
  • Only available in metro capital cities
  • High discharge fee ($795)

The Sucasa Ultra Low Rate is a low-deposit home loan, with low up-front fees, and even gives you the flexibility to make fee-free extra repayments on your mortgage. It’s a variable rate home loan, charging 6.30% p.a. (6.58% p.a. comparison rate*) interest, which is bang on the average basic variable rate (6.29% p.a.) in our database (out of 111 owner-occupied, principal and interest loans of $400,000, with an LVR of <80%, at 19 February 2024). 

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

While <80% LVRs are ideal for lenders, that’s not always achievable for everyone.

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.

How does LVR affect interest rates?

A lower LVR may help to lower your home loan interest rate.

This means, as you pay more and more off of your home loan, dropping down to new LVR tiers, you can look to refinance to help bring down your repayments. 

Or, if you're interested in a home loan with a rate that goes down on it's own, look into Unloan's Variable home loan for refinancers.   

Unloan Variable (Owner Occupier, Refinance Only, LVR <80%)
    What's hot
  • 5.99% p.a. variable rate (5.90% p.a. comparison rate*)
  • Zero upfront or ongoing fees
  • Low cost home loan winner - Mozo Experts Choice Awards 2023 & 2024^
  • What's not
  • Refinancers only

Unloan’s Variable Home Loan has taken out a low cost home loan award for the second year running in the Mozo Experts Choice Awards^. Built by CommBank, Unloan offers owner-occupiers a super low 5.99% p.a. variable rate (5.90% p.a. comparison rate*) along with a loyalty discount that shaves 1 basis point off your interest every year for up to 30 years. Loan features include free extra repayments and redraw, and there are no pesky fees to pay. Available for refinance loans of up to $10M. Minimum 20% deposit. 

Average variable interest rates for LVR tiers 2024

Looking at the average variable interest rates across LVR tiers in the Mozo database, lower LVRs typically result in lower interest rates. 

Correct as of 21 February 2024, for a $400,000, owner-occupied home loan, paying principal and interest. 

  • 60% LVR | 6.76% p.a. 
  • 70% LVR | 6.79% p.a. 
  • 80% LVR | 6.84% p.a.
  • 90% LVR | 7.11% p.a.
  • 90% LVR | 7.36% p.a.

To see what different lenders are offering right now, compare home loans or check out some of the featured deals below.

Compare home loans - last updated 5 March 2024

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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.

What does 80% LVR mean?

80% LVR means you borrow, in the form of a home loan, 80% of the value of a property. 

In other words, you've paid 20% of the cost of the home (either as a deposit or through repayments), and you still owe the lender 80% of the cost of the home. 

An 80% LVR is considered good by a lender. Anything over 80% is considered more risky by lenders. 

What does 60% LVR mean?

If you have 60% LVR, it means you owe your lender 60% of the value of a home. You could also say you've got 40% equity in the property.

This is a very good LVR to have and may help you access lower interest rates as a result. 

Jack Dona
Jack Dona
RG146
Money writer

Jack is RG146 Generic Knowledge certified, with a Bachelor of Communications in Creative Writing from UTS, and uses his creative flair to cut through the financial jargon and make home loans, insurance and banking interesting. His reader-first approach to creating content and his passion for financial literacy means he always looks for innovative ways to explain personal finance. Jack's research and explanations have been featured in government publications, and his work is regularly featured alongside major publications in Google's Top Stories for Insurance.

* 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

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