What is loan to value ratio (LVR)?
Learn what LVR means, how to calculate it, and how it affects your interest rate and LMI. No fees, increasing discount - Unloan.
LVR (loan-to-value ratio) measures the size of your home loan as a percentage of the property’s value. Lenders use LVR to assess risk, set interest rates, and decide whether Lenders Mortgage Insurance (LMI) is required.
A lower LVR means you contribute a bigger deposit, which reduces the lender’s risk. A higher LVR means you borrow more relative to the property’s value, which may increase borrowing costs.
For example, if a property is worth $800,000 and you borrow $640,000, your LVR is 80%. The remaining 20% represents your deposit or equity.
How do you calculate LVR?
You calculate LVR by dividing your loan amount by the property value and multiplying the result by 100.
Formula:
Loan amount ÷ Property value × 100 = LVR
Example:
Loan amount: $640,000
Property value: $800,000
Calculation: 640,000 ÷ 800,000 × 100 = 80% LVR
This percentage tells the lender how much of the property you own outright. The more equity you contribute, the less risk the lender takes on.
Does the lender use the purchase price or bank valuation?
Lenders calculate your LVR using their own bank valuation of the property, not the purchase price.
A bank valuation is a conservative estimate of what the property could sell for. It may be lower than the price you agreed to pay. If the bank valuation comes in below the purchase price, your LVR increases.
Example:
You agree to buy a property for $750,000. The bank values it at $700,000. You borrow $560,000.
- Based on the purchase price: $560,000 ÷ $750,000 × 100 = 74.7% LVR
- Based on the bank valuation: $560,000 ÷ $700,000 × 100 = 80% LVR
In this case, a lower bank valuation pushes your LVR from under 80% to exactly 80%. This could affect your interest rate or trigger LMI.
Why is LVR important when applying for a home loan?
Your LVR directly affects the cost and conditions of your home loan. It determines your interest rate, whether you pay LMI, and how much you can borrow.
Your LVR influences:
- LMI is usually required if your LVR exceeds 80%, adding thousands of dollars to your loan costs
- Lenders may offer tiered rates based on LVR bands, so a lower LVR often means a lower rate
- A higher LVR means you borrow a larger share of the property value, which lenders view as higher risk
- Some lenders impose stricter conditions at higher LVR levels, including property type or location restrictions
What is considered a high or low LVR?
An LVR of 80% or below is generally considered a lower risk. An LVR above 80% is considered higher risk and usually triggers LMI.
Here’s how LVR bands work on a $750,000 property:
With Unloan, eligible borrowers can apply for a home loan with an LVR of up to 90% for purchases. LMI and a higher interest rate apply for LVRs above 80%.
How does LVR affect home loan interest rates?
Yes. A lower LVR means you contribute more equity, so the lender’s risk is lower and your interest rate is usually lower.
Other factors also affect your rate, including income, credit history, loan type, and market conditions. However, LVR is one of the biggest drivers of the rate you’re offered.
Worked example - how LVR changes your rate
Here’s how LVR can affect your interest rate on a $600,000 property. These are illustrative examples only and don’t represent specific lender rates.
In this example, assuming a 30-year principal and interest loan, the borrower with a 70% LVR would pay around $850 less per month than the borrower with a 90% LVR, and would avoid LMI.
How does LVR relate to Lenders Mortgage Insurance (LMI)?
LMI is a one-off insurance premium that protects the lender if a borrower defaults. Most lenders require LMI when your LVR exceeds 80%.
This means the loan covers more than 80% of the property value.
How much does LMI cost?
LMI costs depend on your LVR and loan size. A higher LVR and a larger loan mean a bigger premium.
Example:
On a $600,000 property with a 10% deposit ($60,000), you borrow $540,000 at 90% LVR. LMI could cost approximately $10,000–$15,000, depending on the lender and your circumstances.
If you save an extra $60,000 and put down 20% ($120,000), you borrow $480,000 at 80% LVR. LMI is generally not required.
If you contribute a 20% deposit or more, LMI is usually not required.
Some lenders, including Unloan, offer home loans above 80% LVR. For purchases, Unloan may lend eligible borrowers up to 90% of the property’s value.
LMI and a higher interest rate may apply for LVRs above 80%. In some cases, LMI may also apply for LVRs between 70.01% and 80% depending on the property or lender policy.
Learn more about Unloan’s LMI eligibility criteria.
How can you lower your LVR?
Common ways to lower your LVR include:
- Save for a larger deposit. Every extra dollar you put down reduces the percentage you need to borrow For example, on a $750,000 property with an LVR of 87%, the loan amount would be $652,500 and the deposit would be $97,500. To reduce the LVR to 80%, the loan amount would need to be $600,000, which requires a deposit of $150,000. This means saving an additional $52,500 would reduce the LVR from 87% to 80%.
- Buy a lower-priced property. Borrowing less against a cheaper property reduces your LVR and may help you avoid LMI.
- Refinance after building equity. A new bank valuation may recognise increased property value or reduced loan balance, giving you a lower LVR and potentially a better rate.
A lower LVR can unlock better interest rates, remove LMI costs, and improve your loan approval chances.
Can you buy a home with a high LVR and avoid LMI?
Yes. There are two common ways to buy with a high LVR without paying LMI:
1. Australian Government 5% Deposit Scheme
This allows eligible first home buyers to purchase a home with as little as a 5% deposit. The government provides a guarantee to the lender, so LMI is not required under the Scheme.
Since October 2025, there are no income caps and no annual cap on places. Property price caps still apply and vary by region.
Single parents may qualify for the Family Home Guarantee, which allows a 2% deposit with no LMI.
Please note that Unloan does not participate in government-backed schemes.
2. Family guarantor
A family member can use equity in their property to guarantee part of your loan. This effectively reduces your LVR in the lender’s eyes and may help you avoid LMI.
What LVR do I need to avoid Lenders Mortgage Insurance (LMI)?
You need an LVR of 80% or below to avoid LMI with most lenders. This means a deposit of at least 20% of the property’s value.
For example, on a $600,000 property, you’d need a deposit of at least $120,000 to achieve 80% LVR and avoid LMI.
Some lenders, including Unloan, offer loans above 80% LVR for eligible borrowers. LMI and a higher rate will apply.
How does LVR affect refinancing?
When you refinance, the new lender orders a fresh bank valuation of your property. If your property has increased in value or you’ve paid down your loan, your LVR may be lower than when you first borrowed.
Worked example - refinancing with a lower LVR
You bought a property for $600,000 five years ago with a $60,000 deposit (90% LVR, $540,000 loan). Since then:
- Your loan balance has reduced to $490,000 through repayments
- Your property is now valued at $720,000
Your new LVR: $490,000 ÷ $720,000 × 100 = 68% LVR
This lower LVR means you may qualify for a better interest rate and no longer need LMI.
With Unloan, refinancing comes with no application fees, no ongoing fees*, and an annual loyalty discount that gets better every year (up to 30 years)*. You can check your borrowing power or explore Unloan’s refinancing options.
How does LVR relate to borrowing power?
LVR and borrowing power are related but different. Borrowing power is the maximum amount a lender will lend you based on your income, expenses, and debts. LVR is the percentage of the property’s value you’re borrowing.
You could have strong borrowing power but a high LVR if your deposit is small relative to the property price. Both affect your loan approval and the conditions you receive.
Use Unloan’s borrowing power calculator to estimate how much you could borrow, then factor in your deposit to understand your likely LVR.
Does LVR work differently for investment properties?
Yes. Lenders often apply stricter LVR limits to investment property loans.
Some lenders cap investment loans at 80% LVR or impose higher interest rates and LMI premiums at the same LVR bands compared to owner-occupied loans. This is because investment properties are considered higher risk, borrowers are more likely to default on an investment loan than on the home they live in.
If you’re buying an investment property, aim for the lowest LVR you can. The rate and LMI savings are often even more significant than for owner-occupied purchases.
Ready to check your LVR?
Use Unloan’s borrowing power calculator to see how much you could borrow.
Or start your home loan application in minutes.
With Unloan, you get:
- No application fees
- No ongoing fees
- An annual loyalty discount that increases every year (up to 30 years)*
- Fee-free unlimited redraw
- An online application
- A multi-award winning Australian digital home loan built by CommBank
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
