Understanding LVR: Your Complete Guide

LVR — or Loan-to-Value Ratio — is one of the most important numbers in your home loan application. It determines which lenders will approve you, what interest rate you'll receive, and whether you'll need to pay Lenders Mortgage Insurance (LMI). Here's everything you need to know.

How is LVR calculated?

LVR is simply your loan amount divided by the property's value, expressed as a percentage. If you're buying a $700,000 home with a $140,000 deposit (20%), your loan is $560,000 and your LVR is 80% ($560,000 ÷ $700,000). Simple — but the implications are significant.

Why does LVR matter?

• 80% or below: Access all lenders, best rates, no LMI required
• 81–85% LVR: Most lenders still available, LMI applies (typically $5,000–$15,000)
• 86–90% LVR: Fewer lenders, higher LMI cost (can exceed $20,000)
• 91–95% LVR: Specialist lenders only (or use First Home Guarantee to avoid LMI)
• Above 95%: Very limited options, extremely high LMI — generally not recommended

What is LMI and should I avoid it?

Lenders Mortgage Insurance protects the lender (not you) if you default on the loan. It's a one-off fee added to your loan when your LVR exceeds 80%, and it can cost anywhere from $5,000 to $35,000+ depending on the loan size and LVR. While it's an extra cost, LMI can sometimes make sense — particularly for first home buyers who don't want to wait years to save a full 20% deposit in a rising market.

Strategies to improve your LVR

• Save a larger deposit — even moving from 88% to 85% LVR can save thousands in LMI
• Use the First Home Super Saver Scheme to build your deposit in super (tax-advantaged)
• Negotiate the purchase price — every $10,000 off the purchase price improves your LVR
• Use a guarantor — a parent's property equity can act as security to reduce effective LVR
• Wait for property value to rise — refinancers often benefit from natural price appreciation