Loan-to-value ratio is one of the first numbers a lender looks at — and one of the biggest levers on what you pay. Here's how it works, how to calculate it, and why a lower LVR can quietly save you for the life of a loan.
What is LVR?
The loan-to-value ratio (LVR) is the size of your loan as a percentage of the property's value. If you buy a property for $800,000 with a $600,000 loan, your LVR is 75%. A higher LVR means you're borrowing more against the property (more risk to the lender); a lower LVR means you've put in more of your own money.
Lenders use the lower of the purchase price or the bank's valuation as the property value. Your loan amount, the property's location, your credit history, income and employment all feed into whether — and how — a lender approves it.
A worked example
Purchase price $500,000, loan $400,000, valuation $500,000: LVR = ($400,000 ÷ $500,000) × 100 = 80%. As either the loan balance or the property value changes over time, so does your LVR.
Does LVR include closing costs?
No. Upfront costs — conveyancing, stamp duty, valuation fees, legal fees — aren't part of the loan amount used in the LVR calculation. If you buy a $500,000 property with a $50,000 deposit, your loan is $450,000 and your costs sit outside both the loan and the deposit. With a 10% deposit (90% LVR) you'd typically also pay Lenders Mortgage Insurance.
LVR and your debt-to-income ratio
Lenders also weigh your debt-to-income ratio (DTI) — total debt divided by gross annual income. A $450,000 loan on a $120,000 income with no other debts is a DTI of 3.75. As a general guide, lower is more favourable; many lenders get cautious as DTI climbs toward the high single digits, and exact caps vary by lender and change over time, so treat any specific threshold as a moving target.
Higher vs lower LVR
- Higher LVR (above 80%): more borrowing power and a smaller deposit, but higher interest rates, more risk, and usually LMI.
- Lower LVR (80% or below): better interest rates, less risk, and equity you can use toward the next purchase — at the cost of a bigger deposit upfront.
Does LVR affect your interest rate?
Usually, yes. A lower LVR means more equity and less risk to the lender, which often translates to a cheaper rate. Paying more upfront can mean paying less every month for years. Rates still vary with your credit profile, income and loan term across lenders, so it pays to compare.
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What is a good LVR?
An LVR of 80% or below is generally considered strong — it avoids Lenders Mortgage Insurance and tends to attract better interest rates. Above 80% you can usually still borrow, but expect higher costs and LMI.
Does LVR include stamp duty and closing costs?
No. Upfront costs like stamp duty, conveyancing and valuation fees aren't included in the loan amount used to calculate LVR — they sit outside both the loan and your deposit.
How is LVR calculated?
Divide the loan amount by the property value (the lower of purchase price or bank valuation) and multiply by 100. A $400,000 loan on a $500,000 property is an 80% LVR.
This article is general information only and doesn't take your personal circumstances into account. It isn't financial, tax or investment advice. Tax rules and lender policies change — confirm your position with a licensed professional or the ATO before making decisions.
