If you have applied for a home loan, you have probably heard the term LVR. It affects how much you can borrow, whether you pay Lenders Mortgage Insurance and even the interest rates you may be offered. Here is what it means and why it matters.
LVR stands for Loan-to-Value Ratio. It compares the size of your loan with the value of the property securing it, expressed as a percentage.
LVR = (Loan amount ÷ Property value) × 100
For example, borrowing $560,000 to buy a $700,000 property gives an LVR of 80%. Your deposit of $140,000 makes up the remaining 20%.
Lenders generally use their own valuation, or the purchase price if it is lower. If a lender values the property below what you paid, your LVR will be higher than you expected.
In Australia, many lenders require Lenders Mortgage Insurance (LMI) when your LVR is above 80%. LMI protects the lender, not you, and can add a significant cost to your loan. A lower LVR may also give you access to more loan options and sharper interest rates, depending on the lender.
Your LVR is not fixed. As you make repayments your loan balance falls, and if your property increases in value your LVR falls further. On the other hand, a drop in value or extra borrowing can push it up.
Property Folio AI shows your loan balances alongside your property values, so you can see your LVR and equity for each property and across your portfolio. Smart Reminders help you remember rate reviews, and Rate Benchmarking helps you compare where your loan sits.
LVR is a simple ratio with a big impact on borrowing costs and options. Knowing your current LVR helps you plan refinancing, understand LMI and track your progress as you pay down your loan. For advice on your situation, speak with a licensed lender or mortgage broker.
LVR stands for Loan-to-Value Ratio, which is your loan amount divided by your property’s value, shown as a percentage.
Divide your loan amount by the property value and multiply by 100. A $560,000 loan on a $700,000 property is an LVR of 80%.
Many lenders view an LVR of 80% or below favourably, as it usually avoids Lenders Mortgage Insurance and may open up more loan options.
LMI is insurance that protects the lender if a borrower defaults. Lenders commonly require it when the LVR is above 80%, and the cost is usually paid by the borrower.
Yes. Repayments and rising property values lower your LVR, while falling values or extra borrowing raise it.
