Loan-to-Value Ratio (LVR) is the percentage of your property's value represented by your outstanding loan balance. It is the primary risk metric lenders use when assessing a home loan — the higher the LVR, the higher the risk, and the more the lender charges (in rates and fees) to compensate. Understanding how LVR works — and how to manage it — is fundamental to managing your mortgage cost effectively.
What Is LVR and How Is It Calculated?
LVR is calculated as: (loan amount ÷ property value) × 100. For example: a $560,000 loan against a property valued at $700,000 gives an LVR of 80%. The property value used in this calculation is the lender's valuation — not the purchase price, and not your personal estimate of what the property is worth. In most cases the lender orders a formal valuation (at the borrower's expense, typically $300–$600) before approving the loan.
At purchase, your LVR is determined by your deposit size: a 20% deposit gives an 80% LVR; a 10% deposit gives a 90% LVR; a 5% deposit gives a 95% LVR. Over time, as you make principal repayments and as the property value increases, your LVR falls. When your LVR crosses certain thresholds, you may qualify for better interest rates or become eligible to refinance without LMI.
LVR Is Based on Lender Valuation, Not Purchase Price
If you pay $750,000 for a property but the lender's valuation comes back at $720,000, your LVR will be calculated on $720,000 — even though you paid $750,000. This is called a 'valuation shortfall' and can mean you need a larger cash deposit than planned. Budget a small buffer in case the valuation comes in below the purchase price.
How Your LVR Affects the Interest Rate You Pay
Most Australian lenders use LVR-tiered pricing — the interest rate decreases as the LVR decreases, reflecting the lower risk to the lender. Common LVR tiers are: above 90% LVR (highest rate); 80–90% LVR; 70–80% LVR; 60–70% LVR; below 60% LVR (best rates). The difference between the rate at 95% LVR and 60% LVR with the same lender can be 0.3–0.8% per annum — on a $600,000 loan, that is a difference of $1,800–$4,800 per year in interest.
The 80% LVR threshold is particularly significant: below 80%, LMI is not required, and most lenders offer materially better rates. Every principal repayment brings you closer to this threshold — which is why accelerating repayments in the early years of a high-LVR loan has a compounding benefit.
| LVR Range | LMI Required? | Rate Premium (approx.) | Strategy |
|---|---|---|---|
| < 60% | No | Best rates available | Access best pricing tier |
| 60–70% | No | Very competitive | Strong negotiating position |
| 70–80% | No | Standard competitive | No LMI, good rates |
| 80–90% | Yes | +0.1–0.3% over 80% LVR loans | LMI payable |
| 90–95% | Yes | +0.3–0.6% over 80% LVR loans | LMI significant |
| > 95% | Yes (FHG avoids) | +0.5–0.8% over 80% LVR loans | First Home Guarantee path |
How to Improve Your LVR and Access Better Rates
Your LVR improves in two ways: your loan balance decreasing (through repayments) and your property value increasing. You can accelerate the first by making extra repayments or using an offset account effectively. Property value increases are outside your direct control, but renovations, market appreciation, and time all contribute.
Once your LVR falls below 80%, you can approach your lender to request a rate reduction — or refinance to a lender offering better pricing for your new LVR tier. Lenders are unlikely to proactively reduce your rate when your LVR improves; you need to ask. A mortgage broker can review your current LVR, compare it against what is available in the market, and recommend whether refinancing or renegotiating with your existing lender is the better path.
When Your LVR Falls Below 80%, Act
When your LVR drops below 80%, you eliminate any requirement for LMI on refinancing, and you access the best rate tiers. This is one of the key moments to trigger a mortgage review. Even if you have been with the same lender for years, the market may have moved significantly — and you may be able to reduce your rate materially just by asking.
Frequently Asked Questions
About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.