What is a loan-to-value ratio or LVR in home loans?

    What is a loan-to-value ratio or LVR in home loans?

    Published Fri 3 May 2024 • 6 min read

    When you’re looking for a home loan, one of the numbers especially worth knowing is your ‘loan-to-value ratio’ (LVR). Here’s a quick background on LVR, why it’s so important and how you can improve yours.

    What does loan-to-value ratio mean?

    Loan-to-value ratio (LVR) is a percentage showing your home loan amount compared to your property’s value.

    How is LVR calculated?

    LVR is calculated as your loan amount divided by the property's value multiplied by 100.

    Here's how it works

    For example, let's say you’ve saved a $100,000 deposit to buy a property valued at $500,000. This means the home loan amount is $400,000.

    The LVR is calculated as:

    $400,000 (loan amount) / $500,000 (property value) x 100 = 80%.

    Your LVR will change if the value of your property increases or decreases, or if you borrow more or less money on your current home loan.

    How is LVR used?

    Home loan lenders consider your LVR when you apply for a home loan because the percentage indicates how much of the home’s value you'’ll need to borrow.

    Find out how much you could borrow. In only two minutes you could have an obligation-free indication of your borrowing power.
    Start now
    Start your application online or call us on 1800 100 258, 8am-8pm Mon-Fri and 9am-5pm Sat (AEST/AEDT).
    Get started

    What are the impacts of a high LVR?

    When it comes to home loans, a lower LVR is often better because it means you don’t need to borrow as much, so you pose a smaller risk to a lender if something goes wrong.

    An LVR higher than 80% often means you’ll need to explore alternative options to secure a loan, like buying lenders mortgage insurance (LMI) or getting a guarantor home loan.

    Also, borrowers with a higher LVR can sometimes pay higher interest rates than borrowers with a lower LVR.

    How does LMI work?

    LMI allows buyers with smaller deposits as low as 5% to buy properties rather than waiting to save a traditional 20% deposit.

    LMI is insurance taken out by the lender – e.g. ING – to protect themselves if the buyer defaults on the home loan. LMI is paid for by the buyer but protects the lender. The smaller the deposit, the more LMI you pay.

    How do I improve my LVR?

    The bigger your deposit, the smaller your LVR. If your savings aren't enough to lower your LVR, you could consider:

    • saving longer to increase your deposit contribution
    • becoming more aggressive with your savings strategies
    • adjusting your property search to those requiring a smaller loan amount
    • getting a guarantor home loan.
    Find out how much you could borrow. In only two minutes you could have an obligation-free indication of your borrowing power.
    Start now
    Start your application online or call us on 1800 100 258, 8am-8pm Mon-Fri and 9am-5pm Sat (AEST/AEDT).
    Get started
    Back to top