Loan-to-Value Ratio (LVR)

Loan-to-Value Ratio (LVR) is the size of a mortgage loan expressed as a percentage of the property's purchase price or valuation. It's one of the most important numbers in a property purchase because it determines borrowing costs, deposit requirements, and whether Lender's Mortgage Insurance (LMI) is payable.

An 80% LVR loan requires a 20% deposit and is the threshold Australian banks typically use to waive LMI. Above 80% LVR, lenders charge LMI - a one-off insurance premium that protects the lender (not the borrower) against default. LMI can run $10,000-$30,000 on a typical residential loan, which is often capitalised onto the loan balance rather than paid upfront.

Common LVR bands: 60% LVR typically accesses the best interest rates; 80% is the industry-standard owner-occupier threshold; 90% requires LMI and stricter serviceability assessment; 95% is achievable but expensive in LMI cost. For investment loans, some lenders apply lower maximum LVRs than for owner-occupied loans.

LVR matters beyond the initial purchase because it affects refinancing options and access to equity. A property that rises in value while the mortgage balance falls shifts the LVR downward, freeing capacity to borrow against.