When applying for a home loan, it’s easy to focus on the interest rate. But there’s another number that can have a major impact on your loan options, approval and overall borrowing costs: your Loan-to-Value Ratio (LVR).
Understanding Loan to Value Ratio Australia guidelines can help you make more informed decisions when buying, investing or refinancing a property.
What is Loan-to-Value Ratio (LVR)
Your Loan-to-Value Ratio, commonly known as LVR, compares the amount you’re borrowing with the value of the property being used as security.
Moneysmart defines LVR as the amount of a loan compared to the value of the property or asset purchased, expressed as a percentage.
The basic calculation is:
Loan amount ÷ Property value x 100 = LVR
An LVR calculator can also provide a quick estimate of your LVR based on your loan amount and property value.
For example, if you purchase a property valued at $800,000 and borrow $640,000, your LVR would be 80%.
$640,000 ÷ $800,000 x 100 = 80% LVR
Generally, the larger your deposit or the more equity you hold, the lower your LVR will be.
Why Does LVR Matter?
LVR is one of the factors lenders consider when assessing a home loan application because it helps indicate the level of lending risk involved.
A lower LVR generally means you are borrowing a smaller proportion of the property’s value, which can represent a lower level of risk to a lender.
Depending on the lender and your circumstances, a lower LVR may provide access to more lenders, loan products or competitive interest rates.
However, LVR is not the same as your home loan borrowing capacity. Lenders will also consider factors such as your income, expenses, existing debts, credit history and ability to make repayments when determining how much you may be able to borrow.
What Happens If Your LVR Is Above 80%?
If your LVR is above 80%, you may be required to pay Lenders Mortgage Insurance (LMI).
LMI is designed to protect the lender if a borrower is unable to repay their home loan and the sale of the property does not cover the outstanding loan balance. Importantly, despite the borrower generally paying the cost, LMI protects the lender rather than the borrower.
LMI costs vary depending on your loan amount, LVR and lender and can add thousands of dollars to the cost of purchasing a property.
However, an LVR above 80% does not automatically mean LMI will apply in every situation. Some lenders offer LMI waivers or different lending arrangements for eligible borrowers, including certain professionals. Government home buyer schemes may also help eligible first home buyers purchase with a smaller deposit without paying LMI.
How Can You Improve Your LVR?
If your LVR is higher than you would like, there are several ways you may be able to improve your position:
- Save a larger deposit: Increasing your home loan deposit reduces the amount you need to borrow relative to the property value.
- Build equity before refinancing: Making repayments and increases in your property’s value can help reduce your LVR over time.
- Pay down your home loan balance: Making additional repayments can reduce the amount you owe, helping to lower your LVR over time.
- Purchase within your budget: Choosing a lower-priced property can make it easier to contribute a larger percentage of the purchase price yourself.
- Consider guarantor support: Depending on the lender and your circumstances, a guarantor may be able to provide additional security for your home loan, which could help you purchase with a smaller deposit.
- Obtain an accurate valuation: When refinancing, an up-to-date property valuation may reflect an increase in your property’s value, which could result in a lower LVR.
LVR in the Current 2026 Market
Property values can change over time, which means your LVR can change too.
If your property has increased in value while you’ve been paying down your mortgage, your LVR may now be lower. This could potentially put you in a stronger position to access equity for future property or financial goals.
For example, if you originally borrowed $600,000 against a property worth $700,000, your starting LVR was approximately 86%. If the outstanding loan later reduced to $550,000 and the property was valued at $800,000, the LVR would fall to approximately 69%.
The same principle can apply when you buy an Investment property, where your deposit, property value and loan amount can influence your LVR.
The opposite can also occur if property values decline. This is why regularly reviewing your home loan, property value and equity position can be worthwhile.
Common LVR Myths
Myth: You always need a 20% deposit.
Fact: While a 20% deposit can help borrowers achieve an LVR of 80% or below, there are lending options that may allow eligible borrowers to purchase with a smaller deposit.
Myth: A bigger deposit guarantees home loan approval.
Fact: Lenders also assess your income, expenses, debts, credit history and serviceability.
Myth: LVR and borrowing capacity are the same thing.
Fact: LVR measures your loan against the property’s value. Borrowing capacity refers to how much a lender may be willing to lend based on your financial circumstances.
Myth: Every lender has the same LVR rules.
Fact: Lending policies, maximum LVRs and LMI requirements can vary between lenders and loan types.
How Loan Gallery Finance Can Help
Your LVR is only one part of your home loan application, but understanding it early can help you identify suitable lenders, prepare your deposit and avoid unexpected costs.
Loan Gallery Finance can compare lenders and explain how different LVR requirements may apply to your circumstances, helping you make a more informed decision about your home loan.
Ready to understand where you stand? Get in contact with Loan Gallery Finance to discuss your LVR, borrowing position and home loan options.
