When applying for a home loan, one of the key terms you’ll come across is LVR (Loan-to-Value Ratio).

But what exactly is LVR, and why does it matter?

In this guide, we’ll break down:
 ✔ What LVR means
 ✔ How LVR is calculated
 ✔ Why lenders care about it
 ✔ How LVR affects your home loan approval & interest rates
 ✔ Ways to lower your LVR and avoid extra costs

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

LVR stands for Loan-to-Value Ratio, which represents the percentage of a property’s value that you are borrowing.

LVR Formula:

LVR=(Loan AmountProperty Value)×100LVR = \left( \frac{\text{Loan Amount}}{\text{Property Value}} \right) \times 100LVR=(Property ValueLoan Amount​)×100

Example:

  • You’re buying a home worth $500,000
  • You have a $100,000 deposit
  • Your loan amount is $400,000

LVR=(400,000500,000)×100=80%LVR = \left( \frac{400,000}{500,000} \right) \times 100 = 80\%LVR=(500,000400,000​)×100=80%

So, your LVR is 80%, meaning you’re borrowing 80% of the property’s value.

Why is LVR Important?

Lenders use LVR to assess risk. A lower LVR means you’re borrowing less compared to the property’s value, making you a lower-risk borrower.

Key LVR Brackets & Their Impact:

LVR Range

Risk Level

Loan Impact

60% or below

Very Low Risk ✅

Best interest rates, easy approval

61-80%

Low Risk ✅

Competitive rates, no LMI required

81-90%

Moderate Risk ⚠️

Higher rates, LMI may apply

91-95%

High Risk ⚠️

Requires LMI (Lender’s Mortgage Insurance)

95%+

Very High Risk ❌

Limited lenders, strict approval

📌 Tip: Keeping your LVR 80% or lower helps you avoid LMI fees and secure a lower interest rate.

How Does LVR Affect Your Home Loan?

1️⃣ LVR Impacts Your Interest Rate

Lenders offer better interest rates to borrowers with lower LVR. If your LVR is high, you may face:
 ❌ Higher interest rates
 ❌ Stricter lending criteria

2️⃣ LVR Determines Whether You Need Lender’s Mortgage Insurance (LMI)

If your LVR is above 80%, you’ll likely need LMI (Lender’s Mortgage Insurance)—a one-time fee that protects the lender, not you.

🔹 How Much Does LMI Cost?

LMI costs vary based on loan size and LVR.

Loan Amount

90% LVR LMI Cost

95% LVR LMI Cost

$500,000

~$8,000 – $12,000

~$15,000 – $20,000

$800,000

~$16,000 – $25,000

~$25,000 – $35,000

📌 Tip: If you have less than a 20% deposit, consider using a family guarantor loan to avoid LMI.

Ways to Lower Your LVR & Get a Better Home Loan

✅ Save for a Bigger Deposit – Aim for at least 20% of the property’s value.
✅ Buy a More Affordable Property – A lower property price reduces your LVR.
✅ Increase Property Value – If refinancing, get an updated valuation if your home’s value has increased.
✅ Consider a Guarantor Loan – A family guarantor can reduce your required deposit and help avoid LMI.

Final Thoughts: Why LVR Matters for Your Home Loan

✔ A lower LVR = better loan options 🏡
✔ Keeping LVR below 80% helps you avoid LMI
✔ Higher LVR means higher interest rates & stricter lending rules

📞 Need help finding the best home loan with a lower LVR?
 Let Lower My Rate guide you to the best deals and lowest rates!