Home Loans and Property

What Is Loan-to-Value Ratio (LVR)?

The ratio of a home loan amount to the appraised value of the property, expressed as a percentage. In Australia the term LVR (not LTV) is used universally.

Definition

Loan-to-Value Ratio (LVR) measures how much you are borrowing relative to a property's value. An LVR above 80% triggers a requirement for Lenders Mortgage Insurance (LMI), which protects the lender if you default. Most lenders offer their best rates at 60-70% LVR. With a 20% deposit the LVR is 80% and LMI is avoided. First home buyers can use the First Home Guarantee (FHBG) scheme to borrow up to 95% LVR without LMI if eligible. Maximum LVR for most lenders is 95%.

Formula

LVR = (Loan amount / Property value) x 100

Example

You purchase a $700,000 home with a $140,000 deposit (20%). Loan = $560,000. LVR = 560,000 / 700,000 x 100 = 80%. At exactly 80% LVR, most lenders do not require LMI.

Use It

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Related Terms

Home Loan (Mortgage)A loan secured against residential property used to finance the purchase of a home in Australia, commonly referred to as a home loan or mortgage.Offset AccountA transaction account linked to a home loan where the account balance offsets the loan principal, reducing the interest charged each day.
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