Written byA loan-to-value ratio (LVR) is the amount you borrow as a percentage of the value of the security, usually property, and a key measure of lending risk.
Also known as: LVR, loan to value ratio, loan-to-value, LTV
Key points
- LVR = loan amount divided by property value, multiplied by 100: a $450,000 loan on a $500,000 property is a 90% LVR.
- Lenders usually rely on their own valuation rather than the purchase price, so a low valuation pushes your LVR up.
- Above a lender's threshold, commonly 80%, you may pay lenders mortgage insurance (LMI), face higher pricing or stricter servicing tests.
- A bigger deposit, extra repayments, a guarantor or a revaluation after prices rise all bring your LVR down.
- It applies to home loans, investment loans, refinancing, equity access and commercial lending, with thresholds differing by loan type.
How LVR is calculated
The numerator is the total loan you are asking for, including anything the lender lets you capitalise, such as some fees or the LMI premium. The denominator is the property value: the purchase price or the lender's valuation, whichever the lender adopts. Divide, multiply by 100 and round to one decimal place. Where a loan has several securities, the lender combines the values and loan amounts to get one overall LVR.
A $700,000 purchase with a 10% deposit means a $630,000 loan and a 90% LVR. With a 20% deposit the loan is $560,000 and the LVR 80%. If that property is later valued at $750,000 and the loan is still $560,000, the LVR on a refinance falls to 74.7%.
Why LVR matters
A higher LVR means the lender carries more risk, so it usually charges a larger margin, may add fees or conditions above key thresholds, and applies LVR alongside serviceability when working out how much you can borrow. Very high LVRs face tighter scrutiny and can be declined unless strong income or a guarantee offsets the risk.
Lenders mortgage insurance protects the lender if you default, and the borrower pays the premium. It commonly applies above 80% LVR, that is, when the deposit is under 20%. The premium can be paid upfront or capitalised into the loan, which lifts the LVR further, and insurers band premiums by LVR range and loan size. A guarantor or family pledge, a bigger deposit or a lower-LVR loan are the usual ways around it.
What counts as value
Lenders sometimes accept the contract price but usually order their own valuation, and that figure controls the LVR. An online estimate or agent appraisal can help early on but may not be accepted for the final number. On a construction loan the lender values each stage and measures LVR at every drawdown. If the valuation comes in below the purchase price, your LVR rises and you may need more deposit or other security.
Acceptable LVRs also vary by loan type. Owner-occupier loans allow the highest LVRs with LMI, though many lenders prefer 80% or less for their sharpest pricing. Investor, interest-only and low-doc loans are often capped lower, and commercial LVR bands are tighter again.
How to lower your LVR
Save a larger deposit or use documented gifted funds, make extra repayments to reduce the principal, or renovate and have the property revalued before refinancing. A guarantor or family pledge can reduce the LVR the lender assesses, and adding another property as security does the same. Splitting the loan so part of it sits against a larger deposit lowers the LVR on that portion.
After settlement the LVR keeps moving. Repayments and redraws lower the balance, while a top-up raises it, and every revaluation changes the denominator. That is what opens up equity release or LMI-free refinancing when values rise, and why a refinance that pushes the LVR back above 80% can bring LMI with it.
Example
A first home buyer in Geelong signs a contract for $700,000 with a $70,000 deposit saved. The loan is $630,000, so the LVR is 90% and the lender requires LMI, which the buyer capitalises into the loan. A few years later a valuation puts the property at $750,000 and the balance is down to $560,000, giving an LVR of 74.7%. That lets the buyer refinance without LMI and shop for sharper pricing.
Not to be confused with
- Deposit
- a deposit is the cash you put in; the LVR is the loan as a share of the property's value, so a 20% deposit on the purchase price gives an 80% LVR
- Affordability
- affordability is whether the repayments fit your budget, and serviceability is the lender's test of that; LVR measures the loan against the security's value, and lenders apply both
Frequently asked questions
What is a good LVR?
80% or below is the usual benchmark: LMI generally does not apply, more lenders will consider you and pricing is competitive. Lower LVRs, around 60% or less, attract the sharpest pricing. Between 80% and 90% LMI is likely along with stricter serviceability checks, and above 90% lenders use more discretion. Bands vary between lenders.
Does LVR include stamp duty and fees?
Typically no. LVR compares the loan amount with the property value, and stamp duty and purchase costs sit outside it. If you capitalise stamp duty or fees into the loan and the lender accepts those amounts, the loan figure in the calculation includes them, which raises your LVR.
What happens if the valuation is lower than the purchase price?
Your LVR goes up, because the lender uses its valuation rather than the contract price as the denominator. You may need to find more deposit, renegotiate the price, offer other security or pay LMI where you previously would not have. Lenders can use in-house valuers, panel valuers or automated models, and the method affects the figure.
Can my LVR change after settlement?
Yes. Every repayment lowers the loan balance, a top-up raises it, and a revaluation changes the property value side. Lenders reassess LVR when you refinance, release equity or redraw, and they usually want an up-to-date valuation for that. Rising values can remove LMI on a refinance; a top-up above 80% can bring it back.
Will a guarantor reduce my LVR?
It can. If a guarantor provides approved security, such as equity in their own property, the lender can assess a lower effective LVR for you, which may avoid LMI or open up a wider range of loans. The guarantor's documentation and the lender's approval are required, and the guarantor takes on real risk.
Related terms
Deposit
A deposit is the upfront amount a buyer or borrower pays towards a purchase, either as part-payment on a sale contract or as cash contributed to asset finance.
Read definitionGuarantee
A guarantee is a contract in which a guarantor promises a creditor to pay or perform if the principal debtor defaults, supporting the debt rather than replacing it.
Read definitionHome loan
A home loan is a secured loan used to buy property or fund major home projects, with the lender taking a mortgage over the property as security.
Read definitionMortgage
A mortgage is the legal charge a lender registers over property to secure a loan, giving it the right to sell the property if you default.
Read definitionRefinancing
Refinancing is replacing an existing loan with a new one, from the same or a different lender, to change the interest rate, term or features, or to release equity.
Read definitionAffordability
Affordability is whether a person or household can meet the cost of a good, service or loan repayment without giving up essentials or taking on debt they cannot sustain.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.