Loan-to-value ratio
The size of your loan expressed as a percentage of the property's value.
LVR divides the loan amount by the lender's assessed property value. Borrowing $480,000 against a $600,000 property is an 80% LVR.
It is the single most important number in mortgage pricing. Below 80% you avoid LMI and access the sharpest rates; above it you pay a premium and face tighter assessment.
The value used is the lender's valuation, not the price you paid. A conservative valuation can push your LVR above the threshold even when the contract price suggested otherwise.
LVR bands are usually stepped rather than continuous. Moving from 81% to 79% can produce a disproportionate saving because it crosses a pricing threshold, which is why finding a small additional amount of deposit is sometimes worth far more than it looks.
Crossing the 80% line
On a $600,000 property, borrowing $480,000 is 80% LVR with no LMI. Borrowing $500,000 is 83.3% and can trigger a premium of several thousand dollars.
The bit people get wrong
If the lender values the property below the contract price, your LVR rises and you must find the difference in cash. This is a common problem when buying off the plan in a falling market.
Common questions
What LVR do I need to avoid LMI?
Eighty per cent or below with most lenders. Some professional packages allow higher LVRs without LMI for particular occupations.
Does LVR change over time?
Yes. It falls as you repay principal and as the property appreciates, which is how borrowers eventually access better rates or release equity.
Can I get my property revalued?
Yes. Requesting a revaluation after a period of growth can lower your LVR below 80%, potentially unlocking a better rate.
Run your own numbers