Loan Value Ratio Explained

If you’re looking into buying a home or investment property, you’ve probably come across the term Loan-to-Value Ratio (LVR). It’s one of the most important numbers lenders use when assessing your home loan application — but what does it actually mean?

In this quick guide, we’ll break down what LVR is, how it affects your borrowing power, and why it matters when it comes to getting your loan approved.

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What Is Loan-to-Value Ratio?

Put simply, Loan-to-Value Ratio (LVR) is the percentage of the property’s value that you’re borrowing. It’s calculated by dividing your loan amount by the value of the property, then multiplying by 100.

For example:
If you're buying a home worth $600,000 and your loan is $480,000, your LVR would be:
480,000 ÷ 600,000 × 100 = 80%

Lenders use this figure to assess the level of risk associated with your loan. The higher the LVR, the more you're borrowing relative to the property’s value — which can mean more risk for the lender.

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Why Does LVR Matter?

LVR plays a big role in whether your loan is approved, how much you can borrow, and whether you’ll need to pay Lenders Mortgage Insurance (LMI).

• LVR of 80% or below: This is generally seen as a low-risk loan. You’re likely to get better rates and avoid paying LMI.
• LVR above 80%: You can still get a loan, but you may need to pay LMI — an added cost that protects the lender (not the borrower) in case of default.

Some lenders may also have stricter criteria for higher LVR loans, such as tighter income checks or lower maximum borrowing amounts.

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How to Lower Your LVR

A lower LVR can save you money and expand your loan options. Here’s how to bring it down:

• Save a larger deposit. The bigger your upfront contribution, the less you’ll need to borrow.
• Buy a lower-priced property. This reduces the amount needed to stay under the 80% threshold.
• Use a guarantor. Some borrowers use a family member’s equity to secure a lower LVR.
• Negotiate the purchase price. A lower sale price can improve your LVR immediately.

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What About Property Valuations?

It’s important to note that lenders base LVR on their own valuation of the property — not necessarily the purchase price. If their valuation comes in lower than what you paid, your LVR could end up higher than expected, which may impact your approval or LMI costs.

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We’ll Help You Do the Maths

Understanding your LVR is an important step in the home loan process — but you don’t need to crunch the numbers alone. At Ember Finance, we’ll help you calculate your LVR, explain your options, and guide you towards the most suitable loan for your goals and deposit size.

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Ready to Take the Next Step?

Whether you’re saving for a deposit or already house hunting, we’re here to help you make smart, confident decisions. Get in touch with the Ember Finance team to explore your options and get clarity on your borrowing potential.