The short answer
Loan to value ratio, or LVR, is the loan amount divided by the lender's valuation of the property, expressed as a percentage. A $600,000 loan against a $750,000 valuation is 80% LVR. Staying at or below 80% avoids Lenders Mortgage Insurance with most Australian lenders and typically unlocks better rate tiers.
Loan to value ratio is the single number that decides whether you pay Lenders Mortgage Insurance, which rate tier you land in, and how much of the lender panel will look at your file.
01How do you calculate LVR?
Divide the loan by the property value and multiply by one hundred. Borrowing $600,000 against a property valued at $750,000 gives an LVR of 80%. Borrowing $675,000 against the same property gives 90%.
The critical detail is which value goes on the bottom of that fraction. Lenders use their own valuation, not the price you agreed to pay. If you pay $780,000 and the lender's valuer says $750,000, your LVR is calculated against $750,000, and the shortfall comes out of your deposit.
This is why a valuation coming in under contract price is one of the more disruptive events in a purchase. Nothing about your income changed, but your deposit just got smaller in the lender's eyes.
02Why does 80% matter so much?
Above 80% LVR, most Australian lenders require Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender, not you, against loss if the loan defaults and the sale does not cover the balance. The borrower pays it, and it is frequently capitalised into the loan, which means you also pay interest on it for the life of the mortgage.
The premium is not linear. It climbs sharply as LVR rises, so the gap between 85% and 90% costs considerably more than the gap between 75% and 80%. Finding another one or two percent of deposit right at the threshold is often the highest-return few thousand dollars in the whole transaction.
Some lenders waive or reduce LMI for particular professions, and some accept a family guarantee instead. Both are worth checking before assuming the premium is unavoidable.
| LVR band | What usually happens |
|---|---|
| 60% or below | Best rate tiers at many lenders, widest panel |
| 60% to 80% | Standard residential pricing, no LMI |
| 80% to 90% | LMI applies and rises steeply, panel narrows |
| 90% to 95% | Limited lenders, strict genuine savings and credit requirements |
| Above 95% | Usually needs a guarantor or a specialist structure |
03Does LVR keep mattering after settlement?
Yes, and this is where borrowers leave money behind. LVR falls over time as you repay principal and as the property value moves. A loan that started at 88% might sit near 70% a few years later, which places it in a better rate tier than the one it is still being charged.
Lenders do not generally reprice you automatically for this. A rate review or a refinance is what converts the improved position into a lower repayment.
Falling LVR also creates usable equity. Releasing part of it is how many investors fund the deposit on a second property without contributing new savings.
04How can I lower my LVR before applying?
There are only three levers, and it is worth being clear about which ones are realistic in your timeframe.
Increase the deposit
Additional savings, a documented gift, or proceeds from another sale. The most direct route.
Reduce the purchase price
Buying slightly below your ceiling can move you under a threshold and remove LMI entirely.
Add security
A guarantor's property can be used as additional security to bring the effective LVR under 80%.
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General information only
This article is general information and does not take your objectives, financial situation or needs into account. Lender policies, government schemes and interest rates change. Confirm current details with the relevant lender or government body, and speak to a broker about your own circumstances before acting.
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