Loan to Value Ratio (LVR) guide
As a leading mortgage broker specialising in first home buyers, Buyvest helps you understand and optimise your LVR position. For a complete overview of your first home buying options, read our guide on pathways to home ownership.
Understanding loan to value ratio
Loan to value ratio (LVR) shows how much of a property's value you're borrowing from a mortgage lender. Understanding your LVR is crucial for securing better home loan rates, avoiding unnecessary costs, and making informed decisions about your property investment. Your mortgage broker or home loan specialist can help you optimise this critical metric.
LVR fundamentals: Loan to value ratio is a key metric that mortgage lenders use to assess loan risk. It tells lenders how much of the property's value you're borrowing, which directly affects your mortgage loan eligibility, interest rates, and whether you'll need lenders mortgage insurance (LMI). Our expert mortgage advisors assess this carefully to help you find the best home loans.
LVR is important because it tells your mortgage lender how risky your loan might be. A high LVR, meaning you're borrowing most of the property's value, can be risky for mortgage lenders. A low LVR means less risk as you're not borrowing as much compared to the property's value.
Think of it this way: if you have a substantial deposit, you're borrowing less relative to what the property is worth, which makes mortgage lenders feel more confident about lending to you. This confidence translates into better home loan rates and fewer additional costs. This is why many people work with a professional mortgage finance broker or home loan specialist to optimise their position.
The LVR formula
LVR = (Loan Amount ÷ Property Value) × 100
This simple calculation is the foundation for understanding your borrowing power and comparing home loans effectively. Let's say you're looking at a property worth $600,000 and you have a $120,000 deposit saved. Your loan amount would be $480,000, giving you an LVR of 80%. This level of LVR is typically considered good by most home mortgage lenders.
Calculate your capacity: Not sure if you can afford a property? Use our property deposit calculator to see the maximum property price you can afford based on your deposit, and understand different LVR scenarios.
Why LVR matters to you
- Loan approval: LVR is a big deal for mortgage brokers and lenders. If your LVR is too high, it could mean a 'no' from them. So, it's crucial to have a good-sized deposit to fit within their LVR limits.
- Interest rates: High LVR usually equals higher interest rates on your mortgage loan. Lenders see it as a riskier bet and charge you more in interest to cover that risk. When comparing home loans, you'll notice better rates with lower LVRs.
- Lenders mortgage insurance costs: When your LVR exceeds 80%, you'll typically need to pay LMI, an extra cost that can significantly bump up your total mortgage cost.
- Access to special offers: Got your eye on a lender's cashback offer or other perks? A high LVR might mean you're not eligible. Mortgage lenders often reserve these sweet deals for borrowers with lower LVR. A good mortgage advisor or home loan expert can help you find these opportunities.
LVR in different situations
Context matters: Your LVR calculation varies depending on your circumstances. Whether you're refinancing, buying your first home, taking out a construction loan, or using a guarantor, understanding how LVR applies to your situation is essential. This is where expert mortgage advisors and home loan brokers add real value.
First home buyers and home loans
When buying your first home, remember to add in extra costs like stamp duty when you're working out your LVR. This means your total borrowing needs are higher than just the property price, which affects your LVR calculation and your ability to get low rate home loans.
As a first home buyer, you might also qualify for Home Guarantee Scheme assistance, which can help you access home loans with higher LVRs without paying LMI. This scheme is specifically designed to help first home buyers overcome the deposit hurdle. Working with a home loan broker or mortgage broker Sydney can help you maximise these benefits.
Explore deposit options: Check out our first home buyer deposit options guide to see strategies like the Home Guarantee Scheme benefits and risks, genuine savings requirements, and First Home Super Saver Scheme.
Refinancing your home loan
When refinancing, your mortgage lender will take a fresh look at your property's current value. If your property has appreciated since you got your original home loan, refinancing could reveal a lower LVR, potentially opening the door to more favourable mortgage loan terms and the removal of LMI.
This is where property valuation becomes critical. A bank valuation might show your property is now worth more than when you first purchased it, directly reducing your LVR and improving your borrowing position. Many people use a home loan refinance broker to handle this process and find the best home mortgage rates available.
Estimate your equity: Use our home equity calculator to estimate the amount of equity you can access from a property based on different loan to value ratios, helping you understand refinancing potential.
Construction loans and house loans
For construction loans, your LVR is based on what your property will be worth once everything is built and ready. Lenders assess the projected final value, not just the land value, when calculating your LVR for construction finance. A specialist construction home loan broker can navigate these complexities.
Guarantor loans and better mortgage terms
If you've got a guarantor, the value of their property gets added into the mix when working out your LVR. This can significantly improve your LVR position, making it easier to access home finance with a lower LVR than you could achieve on your own. A mortgage broker near me or home loan specialist can explain how guarantor arrangements work.
What's the best loan to value ratio?
Optimal LVR: A lower LVR is usually better when comparing home loans. Aim for an LVR of 80% or less if you can, as this typically means you won't need to pay lenders mortgage insurance. Understanding the ideal LVR for your situation helps you find the best home mortgage and make smarter borrowing decisions.
A lower LVR is usually better when you're looking to compare home loans and find the best rates. Aim for an LVR of 80% or less if you can. Why? Because it often means you won't have to pay extra for lenders mortgage insurance (LMI). If your LVR is over 90%, it's seen as riskier by mortgage lenders, especially if property prices go down.
However, the "best" LVR depends on your circumstances. Some mortgage lenders offer their most competitive home loan rates to borrowers with LVRs of 60% to 70%, whilst others may have special programmes for first home buyers with higher LVRs. This is why working with a good mortgage broker or mortgage finance broker is valuable – they know which lenders offer the best mortgage loans for your specific situation.
Knowing your LVR helps you make smarter choices about borrowing for a property. Whether you're comparing home loans, securing pre-approval, building a home, or thinking about a guarantor loan, understanding your LVR can lead to better home mortgage rates and long-term savings.
Factors that influence maximum LVR
LVR limitations: Several factors can affect the maximum LVR that mortgage lenders will offer. Understanding these limitations helps you plan your borrowing strategy and manage expectations when applying for a home loan.
Property size and type
Mortgage lenders often have specific LVR limits for smaller properties, such as those with a living area below 40 square metres. Similarly, if you're looking to invest in multiple units in the same building or block, be aware that mortgage lenders and home finance brokers might limit the LVR to reduce their risk. Learn more about different property types in our guides on freestanding properties, strata title properties, and first-time land buyers.
Property value
For high-value luxury properties or larger rural properties, you might find that mortgage lenders set a lower maximum LVR. These property types carry different risk profiles, prompting lenders to require larger deposits relative to the property value. Your home loan broker can advise on this.
Property location
The location of your property, especially if it's in certain areas or used for commercial purposes, can influence the LVR limits set by mortgage lenders. Areas with strong rental demand and capital growth typically receive better home loan terms than declining markets. For example, purchasing a property in popular suburbs like Ryde or Parramatta might offer different home mortgage rates depending on local market conditions. A mortgage broker Sydney understands local market dynamics.
Location matters: Explore our guide on why location, condition and vibes matter to evaluate properties beyond just price and understand how location affects your borrowing terms.
Documentation and loan structure
If you're applying for a loan with limited traditional income documentation (low doc loans), expect to see a lower maximum LVR from mortgage lenders. These house loans carry higher perceived risk, so lenders require you to have more equity in the property.
It's vital to remember that these factors can differ amongst various mortgage lenders. For the most accurate and tailored advice on finding the best home loans for your situation, contact Buyvest today to discuss your specific circumstances with our experienced mortgage advisors.
Lenders mortgage insurance and LVR
Understanding LMI: Lenders mortgage insurance (LMI) is closely linked to LVR. Usually required for home loans with an LVR above 80%, LMI protects lenders in case of loan default. However, it's an additional cost that borrowers bear, potentially adding thousands to your mortgage loan.
Understanding LMI costs on home loans
Lenders mortgage insurance (LMI) is closely linked to loan to value ratio (LVR) on your home loan. Usually required for house loans with an LVR above 80%, LMI is a protection for mortgage lenders in case of loan default. It's important to note that the cost of LMI can be added to your home mortgage amount, affecting your final LVR.
LMI costs vary based on your home loan amount and LVR. As a rough guide when comparing home loans:
- For a $500,000 property with a 90% LVR (10% deposit): Expect approximately $8,000 to $15,000 in LMI costs
- For a $500,000 property with an 85% LVR (15% deposit): Expect approximately $5,000 to $9,000 in LMI costs
- For an $800,000 property with a 90% LVR: Expect approximately $13,000 to $24,000 in LMI costs
These costs can either be paid upfront or capitalised into your mortgage loan amount, which increases your LVR slightly and results in paying interest on the LMI premium over the life of the home loan. A good mortgage broker can help you decide which option works best for you.
Plan your budget: Use our mortgage repayment calculator to work out how much your home loan repayments could be with different LVRs and deposit amounts, including LMI costs where applicable.
How to get a better loan to value ratio
Improving your LVR: Lowering your LVR not only opens doors to better home mortgage rates but also saves you money in interest and insurance costs. There are several practical strategies you can employ to improve your LVR position, which is why consulting with a good mortgage broker is valuable.
Build your deposit
Boost your deposit by saving more, which increases your deposit and thereby lowers your LVR. This is the most direct method of improving your borrowing position and accessing better home loans. Even small increases in your deposit can move you from one LVR tier to another, resulting in significantly better interest rates on your mortgage loan.
Leverage guarantor support
Using a guarantor can help secure a home loan with a lower LVR. A guarantor's property equity can be used to support your application without requiring you to provide additional funds upfront. Many mortgage brokers specialise in guarantor home loans.
Explore government schemes
Home Guarantee Scheme assistance, genuine savings requirements, and other programmes like the Shared Equity Scheme (NSW) offer support with your deposit. These government-backed schemes are designed specifically to help eligible borrowers access home finance with higher LVRs than traditional lending would allow. Don't forget about NSW First Home Owner Grant if you're buying a new property.
Strategic property selection
Choosing a more affordable property initially lowers your LVR and helps you find better home mortgage rates. Starting with a more affordable option gives you better borrowing terms, and you can upgrade later as your financial position improves. A home loan expert can help you find the right entry-level property.
Tap into existing equity
Using equity from another property can serve as a deposit, effectively managing your LVR. If you own property with appreciated value, you can leverage that equity to purchase your next property with a lower LVR on your mortgage loan. Use our home equity calculator to explore your options and understand how much you can borrow.
Accurate property valuation
Make sure your property is valued correctly. A higher valuation can reduce your LVR, potentially unlocking better home loan rates and removing the need for LMI. Bank valuations play a crucial role in determining your LVR position and affecting your mortgage terms.
Seek expert guidance from mortgage specialists
Reach out to Buyvest's expert mortgage advisors and home loan specialists who can help you develop a tailored strategy to improve your LVR and secure the best possible home loan rates for your situation. Whether you need a mortgage broker, home loan broker, or specialist lending advice, we're here to help.
LVR is a big player in the home loan game. It affects everything from whether you get the mortgage loan to how much you pay each month. By managing your LVR strategically with the help of a good mortgage broker, you can improve your chances of loan approval and access better home loan rates and special offers.
Understanding your financial position and borrowing capacity
Before you can optimise your LVR, you need to understand your overall financial position. Understanding your budget as a first home buyer is the foundation for making smart decisions about LVR and home loans. You'll need to know your income, expenses, existing debts, and how much you can realistically afford in monthly repayments.
Securing pre-approval is your next critical step. Pre-approval gives you certainty on your borrowing capacity before you start property hunting, and it demonstrates to sellers that you're a serious buyer. This is where a good mortgage broker becomes invaluable.
The property buying process and LVR
Your LVR will be assessed differently depending on how you purchase. Whether you're looking at a private treaty sale, buying at auction, or buying off the plan, your mortgage broker will help you understand how these different purchase methods affect your LVR and financing options.
When you've found the right property, your lender will conduct a bank valuation to confirm the property value, which directly impacts your LVR calculation. Finally, you'll move through to settlement, where your final LVR is locked in.
Frequently asked questions
Common questions: Got questions about LVR and home loans? We've compiled the most common questions borrowers ask about loan to value ratio, including how it affects interest rates, LMI costs, borrowing capacity, and how to compare home loans effectively.
What is considered a good loan to value ratio (LVR)?
Generally, an LVR of 80% or lower is considered good as it allows you to avoid lenders mortgage insurance (LMI) and access better home loan rates. However, the "best" LVR depends on your circumstances. Some mortgage lenders offer their most competitive home loan rates to borrowers with LVRs of 60% to 70%, whilst others may have special programmes for first home buyers with higher LVRs. For a personalised assessment of your specific situation and to compare home loans, reach out to Buyvest – our mortgage brokers can help you find the best rates.
How does loan to value ratio (LVR) affect my interest rate?
Lenders typically offer tiered interest rates based on LVR bands. For example, a mortgage lender might offer their lowest home loan rate for LVRs under 60%, a slightly higher rate for LVRs between 60% to 80%, and their highest rates for LVRs above 80%. The difference can be significant, sometimes 0.5% or more between the lowest and highest LVR tiers. This is why comparing home loans across different LVR scenarios is important. A mortgage adviser or home loan broker can help you understand how different LVRs impact your specific home mortgage rate.
Can I get a home loan with a 95% loan to value ratio (LVR)?
Yes, many mortgage lenders offer home loans with LVRs up to 95%, meaning you only need a 5% deposit. However, these high-LVR house loans typically require lenders mortgage insurance (LMI), which can add thousands to your borrowing costs. Alternatively, eligible first home buyers might access the Home Guarantee Scheme, which allows 95% LVR home loans without LMI – this is often a better option when comparing home loans. Speak with a mortgage broker to explore your best options.
How much does lenders mortgage insurance (LMI) cost?
LMI costs vary based on your home loan amount and LVR. As a rough guide when comparing home loans, for a $500,000 property with a 90% LVR (10% deposit), expect approximately $8,000 to $15,000. For a $500,000 property with an 85% LVR (15% deposit), expect approximately $5,000 to $9,000. These costs can either be paid upfront or capitalised into your mortgage loan, which increases your LVR slightly and results in paying interest on the LMI premium. See our lenders mortgage insurance guide for more information on how to minimise these costs.
Does loan to value ratio (LVR) matter after I get my home loan?
Yes, your LVR continues to matter throughout your mortgage loan term. It affects your ability to refinance to a better home loan deal, access equity for renovations or other investments, remove lenders mortgage insurance (LMI) if your LVR drops below 80% through property value increases or principal reduction, and negotiate better rates with your existing mortgage lender. Understanding your ongoing LVR position is essential for maximising your long-term financial benefit. A mortgage broker can help you monitor this and refinance when appropriate.
How often is loan to value ratio (LVR) calculated?
LVR is calculated when you apply for a home loan and whenever you request changes to your mortgage lending arrangements, such as refinancing or applying for additional funds. Mortgage lenders don't 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. A good mortgage broker will help you track when refinancing makes sense.
Can I have different loan to value ratios (LVR) for different properties?
Yes, each property and its associated mortgage loan has its own LVR. If you own multiple properties, each will have a separate LVR based on its specific loan amount and property value. However, mortgage lenders may consider your overall portfolio LVR when assessing new loan applications. This is something a specialist mortgage broker can help you manage.
How does loan to value ratio (LVR) affect investment property loans?
Investment property loans often have stricter LVR requirements than owner-occupied home loans. Whilst you might find owner-occupied house loans with LVRs up to 95%, investment property home loans might be capped at 80% to 90% LVR. Additionally, interest rates for investment property mortgage loans typically increase more significantly at higher LVRs compared to owner-occupied home loans. When comparing home loans for investment properties, this distinction is important.
Can I negotiate loan to value ratio (LVR) requirements with lenders?
Whilst the basic LVR calculation isn't negotiable, you may be able to negotiate exceptions to a mortgage lender's standard LVR policies based on your overall financial situation. For example, if you have an excellent credit history, stable employment, and strong income, a lender might be willing to offer more favourable home loan rates or terms despite a higher LVR. Speaking with an experienced mortgage adviser or home loan specialist can help you understand your negotiating position.
How does loan to value ratio (LVR) affect my borrowing capacity?
Your LVR directly impacts how much you can borrow. With a lower LVR, you might be able to borrow more relative to your income because you'll likely qualify for lower home loan interest rates, improving your serviceability assessment. Mortgage lenders may apply less stringent assessment criteria for lower-risk, low-LVR home loans, and you'll avoid LMI costs, freeing up more of your borrowing capacity for the actual property purchase. Remember that whilst LVR is important, it's just one factor in the broader context of your property purchase and first home buyer strategy. Balance LVR considerations with other priorities such as location, property type, and your long-term housing needs. A good mortgage broker will help you compare home loans and understand your true borrowing capacity.
Take the next step – find your perfect home loan
Understanding your LVR is crucial, but applying that knowledge to find the best home loans for your situation requires expert guidance. Let Buyvest's experienced mortgage brokers and home loan specialists help you navigate the complexities of LVR, compare home loans, find low rate home loans, and find the best loan structure for your property goals. Whether you need a mortgage broker Sydney, a home loan broker, or a lending broker, we're here to help.
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We specialise in helping first home buyers and homeowners compare home loans, find the best mortgage rates, and access government schemes across Parramatta, North Sydney (Chatswood, Mosman), Hills District (Baulkham Hills, Castle Hill, Kellyville), and Inner West (Marrickville, Newtown, Leichhardt).
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Buyvest is a specialist mortgage broker dedicated to helping Australians compare home loans, find low rate home loans, and secure the best mortgage rates available. Whether you're searching for a mortgage broker near me, need expert guidance on LVR, or want to compare home loans with a trusted lending broker, our team of experienced mortgage advisors are here to help you achieve your homeownership goals. We specialise in first home buyer home loans, investment property finance, and refinancing options across NSW and Australia.
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.
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