What Is LVR? Loan-to-Value Ratio Explained
LVR stands for loan-to-value ratio (sometimes loan-to-valuation ratio). It’s one of the most important numbers in any property loan, because it affects how much you can borrow, the rate you’ll pay and whether you’ll need lenders mortgage insurance.
How to calculate LVR
LVR is the loan amount divided by the property’s value, multiplied by 100.
Example: borrowing $640,000 to buy a property valued at $800,000:
$640,000 ÷ $800,000 × 100 = 80% LVR
Lenders use the lower of the purchase price and their own valuation, so a low valuation can push your LVR up.
Typical maximum LVRs
Every lender sets its own limits. As a general guide:
- Residential home loans: up to 80% without LMI, and higher with LMI or eligible schemes
- Commercial property: commonly up to 65% to 70% with banks
- Low doc loans: usually lower than full doc. See low doc business loans.
- Development and private loans: often lower again, and assessed on the specific project or security
Why LVR matters
- Rate: a lower LVR usually means a lower interest rate
- LMI: residential loans above 80% generally attract lenders mortgage insurance
- Approval: higher LVRs come with stricter credit and servicing requirements
- Refinancing: if your LVR has fallen because you’ve paid the loan down or the value has risen, you may qualify for a better rate
How a broker helps
LVR limits differ by lender, property type and location. We find the lenders whose limits fit your deposit and security, and structure the loan to keep costs down. Read how much deposit you need for a commercial property loan and learn about our home loans and commercial finance.
Frequently asked questions
What LVR do I need to avoid lenders mortgage insurance?
For most residential home loans, borrowing 80% or less of the property’s value avoids lenders mortgage insurance (LMI). Some professions and government schemes allow higher LVRs without LMI.
Is LVR based on the purchase price or the valuation?
Lenders use the lower of the purchase price and their own valuation. If the valuation comes in under the price, your LVR rises and you may need a bigger deposit.
Can I use another property to lower my LVR?
Yes. Offering additional security, such as equity in another property, can reduce the overall LVR and may help you avoid LMI or qualify with a lender.
Talk to Peak Capital
Book a free 15-minute call with a Sydney commercial finance broker. We’ll tell you what you can borrow and which lenders fit your situation.
This article is general information only and doesn’t take into account your objectives, financial situation or needs. Speak to us or your accountant before making a decision.
