Quick answer
LVR, or loan to value ratio, is the amount you borrow divided by the value of the property used as security, shown as a percentage. A 400,000 loan against a 500,000 property is an LVR of 80 per cent. Moneysmart says a lower LVR means lower costs and a better chance of approval, and above 80 per cent you may need lenders mortgage insurance.
Key points
- LVR equals the loan amount divided by the property value, expressed as a percentage.
- Moneysmart says that if your LVR is above 80 per cent you may need to pay lenders mortgage insurance.
- The lender's valuation, not the purchase price alone, can set the value used.
- Private lenders also use LVR, and second mortgages count the first loan too.
What does LVR stand for?
LVR means loan to value ratio. It compares what you want to borrow with what the security property is worth. Moneysmart says lenders call this the loan to value ratio and puts it plainly: the lower your LVR, the lower your costs and the better your chance of loan approval.
You will see LVR in almost every part of property lending: home loans, investment loans, commercial loans, rural loans and private mortgages. It is the first number a lender or broker is likely to ask about.
How is LVR calculated?
The formula is simple:
LVR = loan amount ÷ property value × 100
A worked example, purely for illustration: if a property is valued at 500,000 and the loan is 400,000, the LVR is 80 per cent. If the loan is 250,000, the LVR is 50 per cent. The same maths works for any property, and only the numbers change.
If the property already has a loan on it, the lender usually adds the existing debt to the new amount. That total is divided by the value. This matters most for equity release, refinancing and second mortgages. You can try your own numbers with our equity calculator.
Which value counts?
It depends on the situation, and this is where borrowers are sometimes caught out.
- Buying: lenders often use the lower of the purchase price and their valuation.
- Refinancing or releasing equity: the lender’s valuation is usually the figure.
- Commercial, rural and specialist property: the valuation basis can be more detailed, for example vacant possession value or going-concern value. See our guide to commercial LVR and valuation.
If the valuation comes in lower than you expected, the LVR rises. That can change the amount a lender will advance or whether extra costs apply. If you are unsure how valuation works, our guide to getting a property valuation for a loan explains the process.
Why does 80 per cent come up so often?
Moneysmart states that if your LVR is above 80 per cent, you may need to pay lenders mortgage insurance. It describes this as a one-off fee that protects the lender if you cannot repay. It also says some lenders may accept a deposit as small as 5 per cent, but a smaller deposit may mean higher costs like lenders mortgage insurance.
In practical terms, 80 per cent is a common policy line. Staying at or below it can open up more lenders and more structures. Above it, the options narrow and costs can rise. Our page on low-deposit home loans covers how borrowers approach the higher end.
How does LVR differ across loan types?
| Loan type | How LVR typically shows up |
|---|---|
| Standard home loan | Deposit size and mortgage insurance |
| Refinance or cash-out | Based on a fresh valuation, with total debt counted |
| Second mortgage | Combined LVR across first and second loans |
| Commercial property | Often more conservative, depending on property type |
| Rural property | Depends on land, improvements and income |
| Short-term private loan | Security value, exit plan and ranking |
Lenders set their own limits. We do not quote a cap here because policies vary by lender, property type and borrower circumstances.
What affects my LVR?
Four things move the ratio:
- Loan amount. Borrowing less lowers it.
- Property value. A higher valuation lowers it, a lower one raises it.
- Other debts secured on the property. Existing loans add to the numerator.
- Extra costs capitalised into the loan. Some fees and interest, if added to the loan, increase the balance.
You can improve LVR by saving a larger deposit, paying down debt, offering additional security or sometimes by improving the property in a way that lifts its value. Our page on home equity loans shows how equity builds and when it can be accessed.
How do private lenders use LVR?
Private and non-bank lenders also look at LVR, but they often focus on the security and exit plan more than a standard bank would. Because a second mortgage lender ranks behind the first, the combined LVR and the exit strategy get close attention. Our second mortgage page explains how that works, and the guide on first versus second mortgage ranking covers the priority question.
An illustrative example
This is an illustrative scenario only.
A homeowner has a property valued at 800,000 with an existing loan of 400,000, so the current LVR is 50 per cent. She wants to borrow a further 100,000 for a business expense. The combined debt would be 500,000, which makes the LVR 62.5 per cent on the same valuation.
If a fresh valuation came in at 700,000 instead, the same debt would be an LVR of about 71 per cent. Nothing about her income or intentions has changed, but the ratio has, and a lender’s view of the loan may change with it. This is why valuation timing matters.
What mistakes should I avoid?
- Using a rough guess instead of a likely valuation.
- Forgetting the existing loan when calculating LVR.
- Assuming an online estimate is what the lender will use.
- Ignoring costs that get added to the loan.
- Overlooking how property type affects lender policy.
- Treating 80 per cent as a rule of nature. It is a common line, not a universal law.
How does Ownright use LVR?
We work out your likely LVR early, test it against different lender policies and look for ways to improve the position if it is tight. Trevor Scott’s team handles everything from standard lending to specialist security, such as rural property and commercial property, and works Australia-wide. Where the LVR is high or the security is unusual, we look for solutions other brokers may not know exist. Have a property in mind? Tell us about it and we will work out where your LVR sits.
Ready to see what your LVR allows?
Sounds like you are looking for a loan that works with the equity you have. We are the lending experts in LVR-driven property finance, from home equity to private mortgages, so click the button and see if you qualify.
Frequently asked questions
How do I calculate LVR?
Divide the loan amount by the property value and multiply by 100. If you borrow 300,000 against a property valued at 500,000, the LVR is 60 per cent. If there is already a loan on the property, add it to the new loan before dividing, since lenders look at total debt secured.
Why does 80 per cent matter?
Moneysmart says that if your LVR is above 80 per cent, you may need to pay lenders mortgage insurance, a one-off fee that protects the lender, not you. Many lenders treat 80 per cent as a policy line, so staying at or below it often widens your choice of lenders and structures.
Is the value the purchase price or the valuation?
Lenders typically use the lower of the purchase price and their own valuation, or whichever their policy specifies. For refinancing, the valuation is the main figure. If the valuation comes in lower than expected, the LVR rises, which can reduce how much a lender is willing to advance.
What is a good LVR?
Lower is generally better. Moneysmart says the lower your LVR, the lower your costs and the better your chance of approval. What counts as good depends on the loan type and lender, since some specialist and private lenders work at higher or lower levels depending on the security.
How does LVR work on a second mortgage?
The lender adds the existing first mortgage to the proposed second loan and compares the total with the property value. That combined figure is often the number that matters. Because the second lender ranks behind the first, it tends to look closely at the combined LVR and the exit plan.