Loan to Value Ratio (LVR) guide
This guide explains how LVR works, why it matters, how it applies in different situations (first home buyers, refinancing, construction, guarantor loans), the factors that influence maximum LVR, and practical strategies for improving your position. For a complete overview of your pathways to home ownership, start there and come back to this guide for the LVR detail.
Quick summary: LVR is the percentage of a property's value that you borrow. An LVR of 80% or below is ideal because you avoid LMI and access better interest rates. Above 80%, you typically pay LMI (which can cost $5,000 to $65,000+ depending on the loan size). Government schemes like the Home Guarantee Scheme let you borrow at 95% LVR without LMI, and the Help to Buy Scheme effectively reduces your LVR through government equity contributions.
Understanding Loan to Value Ratio
Loan to Value Ratio shows how much of a property's value you are borrowing from a lender. It is calculated using a simple formula: LVR = (Loan Amount / Property Value) x 100. For example, if you are looking at a property worth $600,000 and you have a $120,000 deposit, your loan amount would be $480,000, giving you an LVR of 80%.
LVR matters because it tells your lender how risky the loan is. A high LVR means you are borrowing most of the property's value, which lenders consider riskier. A low LVR means less risk because you have more of your own money in the property. This risk assessment directly affects four key areas of your loan.
First, loan approval itself. If your LVR is too high for a particular lender's policies, your application may be declined. Second, interest rates. Lenders typically offer tiered rates based on LVR bands. A lender might offer their lowest rate for LVRs under 60%, a slightly higher rate between 60% and 80%, and their highest rates above 80%. The difference can be 0.5% or more between the lowest and highest tiers. Third, LMI. When your LVR exceeds 80%, you will typically need to pay LMI, which can add thousands to tens of thousands to your total loan cost. And fourth, access to special offers and cashback deals, which lenders often reserve for lower-LVR borrowers.
Use our property deposit calculator to see the maximum property price you can afford based on your deposit, and understand different LVR scenarios.
LVR in different situations
First home buyers
When buying your first home, remember to factor in additional costs like stamp duty when calculating your effective LVR. Your total borrowing needs are higher than just the property price, which affects how much deposit you need. As a first home buyer, you may qualify for the Home Guarantee Scheme, which lets you purchase at 95% LVR (5% deposit) without paying LMI. Read about the benefits and risks of buying at high LVR, and check the genuine savings requirements to prepare your deposit. The First Home Super Saver Scheme can also help you build a larger deposit faster.
Refinancing
When refinancing, your lender will conduct a fresh property valuation. If your property has appreciated since your original purchase, refinancing could reveal a lower LVR, potentially opening the door to more favourable loan terms and the removal of LMI. Use our home equity calculator to estimate how much equity you can access at different LVR levels.
Construction loans
For construction loans, your LVR is based on the projected final value of the property once everything is built and ready, not just the land value. Lenders assess the completed property value when calculating your LVR for construction finance.
Guarantor loans
If you have a guarantor, the value of their property is added to the equation when calculating your LVR. This can significantly improve your position, making it easier to access a loan with a lower effective LVR than you could achieve on your own deposit alone.
What is the best Loan to Value Ratio?
An LVR of 80% or below is generally considered the sweet spot because it means you avoid LMI and access better interest rates. Some lenders offer their most competitive rates to borrowers with LVRs of 60% to 70%, while others have special programmes for first home buyers with higher LVRs.
However, the "best" LVR depends on your circumstances. Waiting years to save a 20% deposit means paying rent instead of building equity, and property prices may rise faster than you can save. This is why programmes like the Home Guarantee Scheme (5% deposit, no LMI) and Help to Buy (2% deposit, government equity) exist. They let you enter the market at a higher LVR while minimising the costs that normally come with borrowing more. Knowing your LVR helps you make smarter decisions whether you are securing pre-approval, building a home, or considering a guarantor arrangement.
Factors that influence maximum LVR
Several factors can affect the maximum LVR a lender will offer you beyond just your deposit size.
Property size and type
Lenders often impose specific LVR limits for smaller properties, particularly those with a living area below 40 square metres. Similarly, if you are investing in multiple units in the same building, lenders may cap the LVR to manage concentration risk. Learn more about different property types in our guides on freestanding properties, strata title properties, and land purchases.
Property value and location
For high-value luxury properties or larger rural properties, lenders may set a lower maximum LVR because these property types carry different risk profiles. Location also plays a significant role. Areas with strong rental demand and capital growth typically receive more favourable lending terms than declining markets. Our guide on why location, condition, and vibes matter helps you evaluate properties beyond just price and understand how location affects your borrowing terms.
Documentation and loan structure
If you are applying for a loan with limited traditional income documentation (sometimes called low-doc loans), expect to see a lower maximum LVR. These loans carry higher perceived risk, so lenders require you to have more equity in the property. Our choosing the right finance guide explains different loan structures and their requirements.
Lenders Mortgage Insurance and LVR
Lenders Mortgage Insurance (LMI) is closely linked to LVR. It is usually required for loans with an LVR above 80% and protects the lender (not you) in case of loan default. LMI costs vary based on your loan amount and LVR.
As a guide, on a $500,000 property with a 90% LVR (10% deposit), expect approximately $8,000 to $15,000 in LMI. On the same property with an 85% LVR (15% deposit), the cost drops to approximately $5,000 to $9,000. On an $800,000 property with a 90% LVR, LMI can reach $13,000 to $24,000. These costs can either be paid upfront or capitalised into your loan amount, which increases your LVR slightly and means you pay interest on the LMI premium over the life of the loan.
Use our mortgage repayment calculator to see how different LVRs and deposit amounts affect your monthly repayments, including the impact of capitalised LMI.
Want to understand your LVR position?
We help first home buyers and homeowners optimise their LVR and find the best loan structure from 35+ lenders at $0 cost to you.
How to improve your Loan to Value Ratio
There are several practical strategies for improving your LVR position.
The most direct approach is to build a larger deposit. Even small increases can move you from one LVR tier to another, resulting in significantly better interest rates. The First Home Super Saver Scheme lets you save up to $50,000 through superannuation with tax advantages, and our budgeting guide helps you maximise your saving rate.
A guarantor arrangement uses a family member's property equity to support your application, effectively improving your LVR without requiring additional cash from you. Government schemes are another powerful tool. The Home Guarantee Scheme lets first home buyers purchase at 95% LVR without LMI, the Help to Buy Scheme effectively reduces your borrowing through government equity contributions, and the NSW First Home Owner Grant adds $10,000 to your deposit on new properties.
Strategic property selection also helps. Choosing a more affordable property initially lowers your LVR and gives you better borrowing terms. If you already own a property with appreciated value, you can leverage that equity using our home equity calculator to purchase your next property at a lower LVR. And ensuring an accurate bank valuation can make the difference between needing LMI and not.
The property buying process and LVR
Your LVR is assessed differently depending on how you purchase. Whether you are looking at a private treaty sale, buying at auction, or buying off the plan, your broker will help you understand how each purchase method affects your financing. Our property purchase and valuation guide explains the full process.
When you have found the right property, your lender conducts a bank valuation to confirm the property value, which directly determines your final LVR. You then move through to settlement, where your LVR is locked in.
Frequently asked questions
What is considered a good Loan to Value Ratio?
An LVR of 80% or lower is generally considered good because it allows you to avoid LMI and access better interest rates. Some lenders offer their most competitive rates at LVRs of 60% to 70%. However, the best LVR for you depends on your circumstances and how long it would take to save a larger deposit versus entering the market sooner.
How does LVR affect my interest rate?
Lenders offer tiered interest rates based on LVR bands. The difference can be 0.5% or more between the lowest and highest LVR tiers. For example, a lender might offer their best rate for LVRs under 60%, a slightly higher rate between 60% and 80%, and their highest rates above 80%. A mortgage broker can show you exactly how different LVR levels affect your rate across multiple lenders.
Can I get a home loan with a 95% LVR?
Yes. Many lenders offer loans at 95% LVR, meaning you only need a 5% deposit. However, these loans typically require LMI, which can add thousands to your costs. Eligible first home buyers can access the Home Guarantee Scheme, which allows 95% LVR loans without LMI. This is often a significantly better option.
How much does Lenders Mortgage Insurance cost?
LMI costs vary based on your loan amount and LVR. On a $500,000 property at 90% LVR (10% deposit), expect approximately $8,000 to $15,000. At 85% LVR (15% deposit), expect $5,000 to $9,000. On an $800,000 property at 90% LVR, costs can reach $13,000 to $24,000. See our LMI guide for detailed information.
Does LVR matter after I get my loan?
Yes. Your LVR continues to matter throughout the loan term. It affects your ability to refinance for a better rate, access equity for renovations or other purchases, have LMI removed if your LVR drops below 80% through property appreciation or principal repayments, and negotiate better terms with your existing lender.
How often is LVR calculated?
LVR is calculated when you apply for a loan and whenever you request changes such as refinancing or additional funds. Lenders do not automatically recalculate your LVR as your property value changes or as you make repayments, but you can request a revaluation if you believe your LVR has improved enough to warrant better terms.
Can I have different LVRs for different properties?
Yes. Each property and its associated loan has its own LVR based on its specific loan amount and property value. However, lenders may consider your overall portfolio LVR when assessing new loan applications.
How does LVR affect investment property loans?
Investment property loans often have stricter LVR requirements than owner-occupied loans. While owner-occupied loans may be available at up to 95% LVR, investment property loans are typically capped at 80% to 90%. Interest rates for investment loans also increase more significantly at higher LVRs compared to owner-occupied loans.
Can I negotiate LVR requirements with lenders?
While the LVR calculation itself is not negotiable, you may be able to negotiate exceptions to a lender's standard policies based on your overall financial strength. Excellent credit history, stable employment, and strong income can sometimes result in more favourable terms despite a higher LVR. A mortgage broker understands which lenders are flexible and can position your application accordingly.
How does LVR affect my borrowing capacity?
Your LVR directly impacts how much you can borrow. With a lower LVR, you qualify for lower interest rates, which improves your serviceability assessment. Lenders may apply less stringent criteria for lower-risk loans, and you avoid LMI costs, freeing up more of your borrowing capacity for the actual property purchase. Remember that LVR is one factor alongside your income, expenses, and overall budget.
Take the next step
Understanding your LVR is crucial for securing the best loan terms and minimising costs. Use our property deposit calculator to model different deposit and LVR scenarios, our home equity calculator to estimate accessible equity, and our mortgage repayment calculator to see how LVR affects your monthly repayments.
Learn more about our team, or explore our service areas across 220+ Sydney suburbs.
Optimise your LVR and find the best loan
We help first home buyers and homeowners understand their LVR, access government schemes, and find the best deal from 35+ lenders at $0 cost to you.
Email: hello@buyvest.com.au
Related resources for first home buyers
Continue building your knowledge with our Lenders Mortgage Insurance guide to understand the costs LVR triggers, our Home Guarantee Scheme guide for 5% deposit purchases with no LMI, our deposit options guide for every pathway to improving your LVR, our stamp duty concessions guide to reduce upfront costs alongside LVR planning, and our choosing the right finance guide to compare loan types and features.
Service areas: 220+ suburbs across Sydney including Ryde | Parramatta | Baulkham Hills | Gladesville | Penrith | Chatswood | Castle Hill | Epping | Hornsby | Blacktown | Bankstown | Hurstville | Sutherland | Manly | Bondi | Sydney CBD and more
A lower Loan to Value Ratio (LVR) can help you secure better rates and avoid costly fees.
We show you how to make your LVR work in your favour.
Important stuff:
Please note that the views and opinions expressed in this post are general information only, and this is not financial advice.
Any advice and information is provided by Buyvest Pty Ltd ABN 91 684 841 496, Australia Credit Licence No. 567392 and is general in nature, for educational purposes only and is not intended to constitute specialist or personal advice. This website has been prepared without considering your objectives, financial situation or needs. Therefore, consider the appropriateness of the advice for your situation and needs before taking any action. It should not be relied upon to enter into any legal or financial commitments. Specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy. If any financial product has been mentioned, you should obtain and read a copy of the relevant Product Disclosure Statement and consider the information contained within that Statement concerning your circumstances before deciding whether to acquire the product. You can obtain a copy of the PDS by emailing hello@buyvest.com.au. If you want to change your financial circumstances, such as applying for a loan, all loan applications are subject to credit approval.
All information on this website is subject to change without notice.