LVR (Loan to Value Ratio) is the percentage of a property or asset's value that you're borrowing from a lender. It's one of the most important factors lenders consider when approving loans and setting interest rates.
How to Calculate LVR
The formula is simple:
LVR = (Loan Amount ÷ Property Value) × 100
Example 1: Home Loan
- Property value: $500,000
- Loan amount: $400,000
- LVR: ($400,000 ÷ $500,000) × 100 = 80% LVR
Example 2: Car Loan
- Car value: $40,000
- Loan amount: $36,000
- LVR: ($36,000 ÷ $40,000) × 100 = 90% LVR
Why LVR Matters
1. Determines if You Need LMI
For home loans, if your LVR is above 80%, you'll typically need to pay Lenders Mortgage Insurance (LMI)—a one-off fee of $10,000-$30,000 that protects the lender if you default.
Example:
- LVR 78%: No LMI required
- LVR 85%: LMI ~$15,000 on a $500K property
2. Affects Your Interest Rate
Lower LVR = lower risk for the lender = better interest rate for you.
Example rates:
- LVR 60-70%: 5.8% p.a.
- LVR 71-80%: 6.0% p.a.
- LVR 81-90%: 6.3% p.a.
- LVR 91-95%: 6.6% p.a.
A 0.5% difference on a $500,000 loan saves you ~$2,500/year.
3. Impacts Approval Odds
Higher LVR = higher risk = harder to get approved.
Maximum LVRs by loan type:
- Home loans: Up to 95% (some lenders)
- Car loans: Up to 120% (including on-road costs)
- Investment property: Usually max 90% LVR
How to Improve Your LVR
1. Provide a Larger Deposit
The bigger your deposit, the lower your LVR.
Example: Buying a $600,000 home
- $60,000 deposit (10%): 90% LVR
- $120,000 deposit (20%): 80% LVR (no LMI!)
2. Buy a Cheaper Property/Asset
Borrowing the same amount for a lower-value property increases LVR.
Example: You have a $100,000 deposit
- $500,000 property: ($400K ÷ $500K) = 80% LVR
- $400,000 property: ($300K ÷ $400K) = 75% LVR
3. Pay Down Your Loan (Refinancing)
If you bought years ago and your property has increased in value while you've paid down the loan, your LVR has dropped—qualifying you for better rates when you refinance.
Example:
- 2020: Bought for $500,000, borrowed $450,000 (90% LVR)
- 2025: Property worth $700,000, loan balance $400,000 (57% LVR)
- Refinancing LVR: 57%—you now qualify for "low LVR" rates!
LVR and Government Schemes
The First Home Guarantee lets first home buyers borrow with just a 5% deposit (95% LVR) without paying LMI—the government guarantees the lender's risk.
Example:
- Property: $650,000
- Deposit: $32,500 (5%)
- Loan: $617,500 (95% LVR)
- LMI: $0 (saved ~$25,000!)
Final Thoughts
Lower LVR is better:
- Avoid LMI (if LVR ≤ 80%)
- Get lower interest rates
- Easier loan approval
If you can't afford a 20% deposit, speak to a NIK Finance broker about:
- Lenders who accept 90-95% LVR
- Government schemes (First Home Guarantee, Family Guarantee)
- Using a guarantor to reduce effective LVR