Loan-to-value ratio (LVR) calculator

Loan-to-value ratio (LVR) is calculated by dividing the amount you are borrowing by the lender’s valuation of the property, then multiplying the result by 100. The bigger your deposit, the lower the LVR will be.

For example, if you take out a $400,000 home loan to buy a house valued at $500,000, your LVR would be 80%, meaning the loan represents 80% of the property’s value. While this example excludes upfront homebuying costs such as legal fees, stamp duty and lenders mortgage insurance (LMI), these costs can affect how much you might need to borrow, and subsequently your total homebuying costs.

Over the life of your loan, your LVR can change due to a range of factors, including:

• movements in property values, which can increase or decrease your equity and affect your LVR
• bank valuations, which lenders use and may be more conservative than market estimates
• changes to your loan balance, such as making repayments, accessing equity or refinancing.

A lower LVR is generally considered better but there’s typically no such thing as a ‘good’ or ‘bad’ loan-to-value ratio (LVR). Borrowers with a larger deposit usually pose less risk to lenders and some lenders may offer more competitive interest rates to borrowers with LVRs below 80%.

As a general rule, you’ll want to aim for an LVR of 80% or lower to avoid paying LMI. Keeping your LVR sitting below this threshold may also provide a safety buffer in case a lender’s valuation comes in lower than expected.

Lenders calculate your loan‑to‑value ratio (LVR) using the lower of the property’s purchase price or the bank’s professional valuation.

There are generally two types of property valuations: market valuation and bank valuation. A market valuation indicates the price a property would typically sell for in current market conditions. A bank valuation, however, is carried out by a professional valuer appointed by the lender and often focuses on the property’s potential ‘quick‑sale value’ to ensure the loan is secure.

If the bank’s valuation differs from the market price, lenders will generally use the lower of the two figures when determining your LVR.

You’ll usually need to pay lenders mortgage insurance (LMI) if your deposit is less than 20% of the property’s value, or if your loan-to-value ratio (LVR) is above 80%. However, some borrowers may be able to avoid LMI despite a higher LVR. This can include eligible first home buyers, borrowers using a family guarantor, and certain professionals, such as doctors and lawyers, who may qualify for an occupation-based LMI waiver. In some cases, these waivers can allow borrowers to avoid LMI with an LVR as high as 95%, or occasionally 100%.

Moreover, you can always choose to hold off and save a bigger deposit to reduce your LVR below 80% or speak to one of our expert mortgage brokers to explore other options that may be available to you.

You can avoid paying lenders mortgage insurance (LMI) even with a loan-to-value ratio exceeding 80%, if you qualify for an occupation-based LMI waiver, use a family guarantor or are approved for the Australian Government 5% Deposit Scheme. The scheme removes the need to pay LMI for eligible first home buyers with a deposit as low as 5%, and single parents or legal guardians with a deposit as low as 2%.

If a family member acts as a guarantor on your home loan, using the equity in their own property to support your loan, the bank would still need to do their due diligence and make sure that your guarantor has sufficient equity in their own home.

Keep in mind that a guarantor is legally responsible for the guaranteed amount if you’re unable to make repayments. So you should carefully consider this option, as a default on your part could cause difficulties for your guarantor(s).

Yes, your loan-to-value ratio (LVR) can directly affect the interest rate your lender offers, as well as fees and overall loan terms. Those borrowing a smaller percentage of their property’s value may receive more favourable interest rates because of the lower risk they pose. Conversely, loans with LVR above 80% are generally considered high risk and may attract higher interest rates and lenders mortgage insurance (LMI).

Higher LVRs can also come with stricter lending criteria and limited product options compared with low-LVR loans. This may include shorter fixed terms, or limited access to features such as offset accounts or redraw facilities. In some cases, lenders may also limit how much you can borrow if your deposit is below the 20% threshold, restricting your property options.

If you originally took out your loan with a loan-to-value ratio (LVR) above 80%, it may be worth considering refinancing or renegotiating your home loan once your LVR drops. A lower LVR can reduce the lender’s risk, which may help you secure a lower interest rate, either with your current lender or a new one, and potentially reduce your repayments.

When refinancing, your lender will usually re-assess the value of the property, as the original purchase price or previous valuation may no longer reflect current market conditions.

It’s important to note that if you refinance while your LVR is still more than 80%, you’ll likely need to pay lenders mortgage insurance (LMI) again, as LMI isn’t transferable from one lender to another.