The loan-to-value ratio (LVR) is the size of a loan as a percentage of the value of the asset securing it. Most commonly it describes a home loan against a property valuation. Lenders use the LVR to price risk, and loans above 80 per cent LVR typically require lenders mortgage insurance.
The arithmetic is a single division: loan amount over the lender’s valuation of the property. Borrow $480,000 against a property valued at $600,000 and the LVR is 80 per cent. The valuation in the denominator is the lender’s, which can differ from the purchase price, and it is the lower of the two that usually governs.
The 80 per cent line matters because above it most lenders require lenders mortgage insurance, a premium that protects the lender, not the borrower, and is generally added to the loan. Lenders also tier interest-rate offers by LVR band, and regulators watch the share of high-LVR lending as a gauge of risk in the housing market.
This page defines the ratio; Tradergy’s borrowing-power calculator shows how deposit, income and rates interact, entirely in the browser.
Longer read: What lenders mortgage insurance actually covers, and the costs outside the rate. Some of what a home loan costs sits outside the interest rate entirely, and one of those items insures somebody other than the person paying for it.
See the borrowing-power calculator for where this term shows up in practice.
Related terms
Comparison rate · Offset account · Stamp duty (transfer duty) · All terms
Primary authority: Moneysmart: home loans. Definition reviewed against the authority’s published material; this page is reference information, not advice.
Common questions
How is LVR calculated?
Divide the loan amount by the lender’s valuation of the property and express it as a percentage. A $450,000 loan against a $600,000 valuation is a 75 per cent LVR. Where the valuation and purchase price differ, lenders generally use the lower figure.
What is lenders mortgage insurance?
A one-off insurance premium most lenders require on loans above 80 per cent LVR. It protects the lender against loss if the borrower defaults, and the cost is usually paid by the borrower, often capitalised into the loan itself.
Does the deposit size set the LVR?
Directly. The deposit plus the loan covers the purchase, so a 20 per cent deposit produces an 80 per cent LVR against a valuation matching the price. Costs paid from savings, such as duty, reduce the deposit available and push the LVR up.