Loan to Value Ratio

What is Loan to Value Ratio (LVR)?

Loan to Value Ratio, or more commonly known as LVR, signifies what portion of the total value of a property a person is borrowing.

For example, if you are buying a property worth $200,000 and have a $50,000 deposit, then your LVR is 75% because you are borrowing 75% of the value of the property.

A borrower’s LVR is hugely important to lenders. It can impact the rate you’ll qualify for as well as the amount a lender is willing to lend you. Borrower’s with a lower LVR are viewed as lower risk by lenders.

How is Loan to Value Ratio (LVR) calculated?


LVR is calculated by dividing your loan amount by the value of the property, then multiplying by 100.

Loan to Value Ratio (LVR) formula:(Loan amount / Value of property) x 100 = LVR

For example, if you took out a $500,000 loan for a house worth $600,000, then your LVR would be $500,000 divided by $600,000 which is 83%.


Is it better to have a lower or higher LVR?


It’s always better to have a lower LVR. Borrowers with a low LVR are in less debt and are considered low risk by lenders.

Why is Loan to Value Ratio (LVR) important?


Lenders assess a number of things when considering a home loan application and a borrower’s LVR is just one of them. Lenders evaluate LVR before approving a home loan in order to determine the amount of risk involved.

If your LVR is high (greater than 80%), the loan may be considered higher risk. Generally, the lower your LVR, the more equity you hold in the property and the better your likelihood of being offered a lower interest rate.

If your deposit is less than 20% of the assessed value of the property, your LVR will be greater than 80%, and your lender may require you to pay Lenders Mortgage Insurance (LMI) in order to have your loan approved.

Can I get a home loan if I have over 80% LVR?


Yes, there are lots of lenders that offer loans to borrowers with high LVR. Of course this all depends on your lender as well as your specific financial situation, employment history and credit rating.

It is important to note that since your deposit is less than 20% of the property purchase price your lender may still require you to pay Lenders Mortgage Insurance on top of your loan repayments.