What Is LVR (Loan-to-Value Ratio)?

How to Calculate LVR

The formula is simple:

LVR = (loan amount ÷ property value) × 100

This gives you the percentage of the property's value you're borrowing.

Example 1

• Property value: $500,000
• Loan amount: $400,000
• LVR = (400,000 ÷ 500,000) × 100 = 80%

Example 2

• Property value: $600,000
• Loan amount: $540,000
• LVR = (540,000 ÷ 600,000) × 100 = 90%

The following pie charts illustrate how a typical home loan is broken down, showing the proportion of the loan amount, deposit, and Lenders Mortgage Insurance (LMI) involved.

As you can see from the breakdown, a smaller deposit or higher LVR can increase the proportion of your loan that goes towards LMI, affecting the overall cost of your home loan.

As the loan grows relative to the property's value, the LVR rises. In Australia, 80% is the key threshold: at or below it, you'll generally access better rates and avoid Lenders Mortgage Insurance (LMI). Knowing your LVR also tells you how much deposit you need, for an 80% LVR, that's a 20% deposit.

How LVR Affects Your Loan

Lenders use LVR to gauge risk: the higher the LVR, the more they stand to lose if the property's value falls or you default. A higher LVR typically leads to:

• Higher interest rates, to offset the added risk
• A requirement to pay LMI (above 80% LVR)
• Closer scrutiny of your overall financial position
• Tighter limits on how much a lender will advance

A lower LVR signals more equity and less risk, which usually unlocks sharper rates and more favourable terms. It's also linked to your borrowing power: a stronger equity position can support a larger loan, while a high LVR may see lenders rein in what they'll lend.

While exact pricing varies between lenders and over time, the principle is consistent, the lower your LVR, the better the interest rate you're likely to be offered.

LVR and Lenders Mortgage Insurance (LMI)

When your LVR goes above 80%, most lenders require LMI. This is a one-off insurance premium that protects the lender (not you) if you can't repay. It allows you to buy with a smaller deposit, but it adds to your costs.

For example, on a $500,000 property a borrower with an 85% LVR (a $425,000 loan) would typically pay LMI, as would someone borrowing 90% of a $600,000 home. The premium depends on your loan size and LVR and can range from a few thousand dollars to well over $15,000 for high-LVR loans, so it's worth understanding before you commit. Our LMI explainer covers how it's calculated and how to reduce it.

Typical LVR Thresholds in Australia

Most Australian lenders price and assess loans around a few key LVR bands:

• 80% LVR is the sweet spot for most buyers. With a 20% deposit you avoid LMI and access the best rates and terms.
• 90% LVR is achievable with a 10% deposit, but expect LMI and a slightly higher rate.
• 95% LVR means a 5% deposit. It's common for first home buyers, and some government support, such as the First Home Guarantee lets eligible first home buyers borrow up to 95% without paying LMI.

Generally, lenders prefer an LVR of 80% or below, which tends to mean better rates, more favourable terms, and a smoother path to approval. Above 80%, expect more conditions and a higher overall cost.

Property Valuation and Its Effect on LVR

Here's something many buyers miss: your LVR is based on the lender's valuation, not necessarily the price you agreed to pay. Lenders usually order their own property valuation, and if it differs from the purchase price, your LVR shifts with it.

Example 1: valuation below purchase price

• Purchase price: $600,000
• Bank valuation: $590,000
• Loan amount: $540,000
• LVR on valuation: 540,000 ÷ 590,000 = 91.5%

Here the lower valuation pushes the LVR up, which could trigger LMI or a higher rate.

Example 2: valuation above purchase price

• Purchase price: $500,000
• Bank valuation: $510,000
• Loan amount: $400,000
• LVR on valuation: 400,000 ÷ 510,000 = 78.4%

A higher valuation lowers your LVR, potentially giving you more borrowing power or helping you avoid LMI.

This is why the gap between market value (what you agree to pay) and bank valuation (what the lender assesses) matters so much, and why a conservative valuation can change your loan terms.

How to Improve Your LVR

A lower LVR means better terms and less chance of paying LMI. Ways to get there:

• Save a larger deposit: The most direct lever, a bigger deposit means a smaller loan and a lower LVR. A 20% deposit gets you to 80% and avoids LMI. Our tips on saving a deposit can help.
• Consider a more affordable property: Borrowing less against a lower price reduces your LVR.
• Pay down existing debts: Clearing credit cards and personal loans improves your overall position and borrowing power.
• Use a government scheme: Eligible first home buyers can use the First Home Guarantee to buy with a smaller deposit and skip LMI.
• Use a guarantor: A guarantor, usually a family member offering equity in their property as security, can lower your effective LVR and help you avoid LMI.

How Stryve Finance Can Help

Your LVR sits at the centre of your borrowing power, your rate and your upfront costs, and small changes can make a real difference. At Stryve Finance, we help you understand where your LVR lands, compare lenders that suit your deposit, and structure your loan to keep costs down, whether you're a first home buyer or refinancing.

Want to know your LVR and what it means for your options? Book a free consultation with a Stryve broker.

Frequently Asked Questions

What does LVR mean?

LVR stands for loan-to-value ratio, the percentage of a property's value that you borrow. If you borrow $400,000 against a $500,000 property, your LVR is 80%. It's a key measure lenders use to assess risk.

How do I calculate my LVR?

Divide your loan amount by the property's value and multiply by 100. For example, a $450,000 loan on a $500,000 property is an LVR of 90%. Lenders use their own valuation, which may differ from the purchase price.

What is a good LVR?

An LVR of 80% or below is generally considered good. It means a deposit of 20% or more, which helps you avoid LMI and access better interest rates and terms.

Does a higher LVR mean a higher interest rate?

Usually, yes. A higher LVR means more risk for the lender, so it often comes with a higher rate, the need for LMI, and stricter conditions. A lower LVR typically earns sharper pricing.

Can I get a home loan with a high LVR?

Yes. Loans above 80% LVR are common, but you'll generally need to pay LMI and may face a higher rate. First home buyers can sometimes borrow up to 95%, and avoid LMI, through schemes like the First Home Guarantee.

How can I avoid paying LMI?

Save at least a 20% deposit to keep your LVR at or below 80%, use a guarantor, or qualify for a government scheme such as the First Home Guarantee, which lets eligible first home buyers avoid LMI with a smaller deposit.