When you’re buying a home in Australia, there’s one number that quietly shapes almost every part of your mortgage: your loan-to-value ratio (LVR).
It determines:
- how much you can borrow,
- whether you’ll pay Lenders Mortgage Insurance (LMI),
- and what kind of interest rate you’ll qualify for.
Get your LVR right, and you’ll save thousands over the life of your loan. Get it wrong, and you could be stuck with higher repayments, limited loan options, and upfront costs you weren’t expecting.
So, let’s unpack exactly what LVR is, why the 80% mark is such a big deal, and how you can use it to your advantage as a property buyer in Australia.
What Is Loan-to-Value Ratio?
Your loan-to-value ratio simply shows what percentage of a property’s value you’re borrowing.
For example:
| Item | Amount |
| Property price | $500,000 |
| Deposit | $100,000 |
| Loan amount | $400,000 |
| LVR | 80% |
Your LVR = ($400,000 ÷ $500,000) × 100 = 80%.
It’s basically a risk score for the bank. A lower LVR means you’re less risky, so you’ll get better deals. A higher LVR means the bank is taking on more risk, and you’ll usually pay extra for that privilege.
How Banks Actually Calculate LVR
Here’s where people often get caught off guard: the bank doesn’t always use your purchase price. Instead, they’ll order an independent valuation.
If their valuer says the property is worth less than what you paid, they’ll use that lower figure.
Example:
- You agree to buy for $600,000.
- Bank valuation: $580,000.
- Loan: $450,000.
Your LVR is based on $580,000, not $600,000, which bumps it up to 77.6% instead of 75%.
This matters because it could push you over the critical 80% threshold. Always plan for a buffer in your deposit so a conservative valuation doesn’t derail your loan approval.
Is 80% the Goldilocks Zone?
In Australia, 80% LVR is widely recognised as the benchmark for lenders. It’s not a hard rule set in stone, but it’s the point where most banks and lenders draw the line between “low risk” and “higher risk.”
- At 80% or below, you’re generally seen as a safe borrower. That usually means:
- access to the lowest interest rates,
- no Lenders Mortgage Insurance (LMI), and
- more choice of loan products.
- Above 80%, the costs start to climb. Even moving from 79% to 81% can trigger LMI and add thousands to your upfront costs.
Some lenders also use tiered pricing. For example, you might get one rate at 80%, a slightly higher rate at 85%, and higher again at 90% or 95%. The takeaway is simple: the lower your LVR, the stronger your bargaining position.
Lenders Mortgage Insurance (LMI): The Cost of a Small Deposit
If your loan-to-value ratio (LVR) is above 80%, you’ll almost always need to pay Lenders Mortgage Insurance (LMI).
Think of LMI as the price you pay for not having a 20% deposit. It’s a one-off fee that can range from a few thousand dollars to more than $50,000, depending on the size of your loan and how high your LVR is. The higher your LVR, the higher the LMI.
But while LMI mainly protects the lender, it also lets borrowers buy a home sooner with a smaller deposit.
How Much Can LMI Cost?
| Property Price | Deposit | Loan Amount | LVR | Approx. LMI Cost* | Notes |
| $500,000 | $100,000 | $400,000 | 80% | $0 | No LMI needed at or below 80% LVR |
| $500,000 | $75,000 | $425,000 | 85% | ~$4,000–$6,000 | Varies by lender; still below 20% deposit |
| $500,000 | $50,000 | $450,000 | 90% | ~$7,000 – $11,000 | Higher risk to lender = higher premium |
| $500,000 | $25,000 | $475,000 | 95% | $15,000+ | LMI climbs steeply at very high LVRs |
However, it’s important to note that LMI isn’t standardised—it depends on your lender, loan size, insurer, and other factors. That’s why two people with the same deposit percentage may pay different amounts. If you add it to your loan, you’ll also pay interest on the premium over time.
Can I Refund the LMI?
Once LMI is paid, it’s usually non-refundable. Even if your equity later grows to 20% or more, the premium is gone—it’s not like other insurance that you can cancel and stop paying.
Paying LMI
You usually have two options:
- Upfront at settlement (if you have the funds available).
- Added to your loan—the more common choice, but it means paying interest on the premium over time.
How LVR Affects Your Interest Rate
Banks reward lower-risk borrowers with sharper rates.
For example:
- At 80% LVR, Bank A might offer 6.00%.
- At 90% LVR, the rate can jump to 6.25%.
That 0.25% difference may not sound like much, but on a $500,000 loan it’s about $625 per year—or tens of thousands over 30 years.
Sometimes even a small extra deposit—say $10,000—can push you into a better tier, saving you tens of thousands long-term.
Ways to Improve Your LVR (Without Waiting Years to Save)
Building a bigger deposit is the most obvious way to reduce your LVR—but it’s not the only option.
Here are some smarter strategies:
- Professional LMI Waivers
If you’re a doctor, lawyer, accountant, or in another recognised profession, some banks waive LMI even with high LVRs. - Family Guarantees
Parents or close family can use their home’s equity as security, letting you borrow up to 100% without LMI. - Government Schemes
The First Home Guarantee (part of the Home Guarantee Scheme) allows eligible buyers to purchase with just a 5% deposit and no LMI. - Buy a Cheaper Property First
Instead of waiting for years to save a huge deposit, some buyers start smaller. For example:- $400,000 property + $80,000 deposit = 80% LVR.
- $600,000 property + same deposit = 87% LVR + LMI.
- Refinance Later
Even if you start with a high LVR, you can refinance to a better deal once your equity improves through repayments or property growth.
LVR Across Australia: City vs Regional
The rules around LVR apply everywhere, but there are some regional differences.
- Capital cities: Property prices are higher, so reaching 20% deposit takes more savings. For example, a $1.2 million Sydney home requires $240k to hit 80%.
- Regional areas: Deposits are more achievable, but lenders may be stricter on valuations, especially in smaller towns.
The silver lining? Regional prices are generally lower, so saving 20% is more realistic. Plus, recent growth in many regional markets has helped owners improve their LVRs faster.
Planning Ahead: Your LVR Over Time
Your LVR isn’t fixed, but improves as you pay down your loan and as your property’s value rises.
Example:
- Property: $500,000
- Loan: $400,000 (80% LVR)
After a few years, you’ve repaid $10,000, dropping your loan to $390,000. Your LVR is now 78%.
If the property’s value also rises to $550,000, your LVR falls even further to about 71%.
That’s why many Australians refinance after a few years—to access better rates once their LVR improves, or to use their equity for renovations or an investment property.
Key Takeaways for Buyers
- LVR = Loan ÷ Property Value × 100
- 80% LVR or lower = best rates + no LMI.
- Above 80% = higher rates + LMI costs.
- Even small improvements in LVR can save thousands.
- Your LVR will naturally improve over time through repayments and property growth.
Making LVR Work for You
Your loan-to-value ratio (LVR) isn’t just a figure—it’s a lever you can use to save money and unlock better loan options.
The key is knowing how it works. We explain your LVR in plain English, show you how it impacts interest rates and LMI, and create strategies to put you in the strongest position. With access to dozens of lenders and deep local market knowledge, you’ll see options the banks don’t always show.
And the support doesn’t stop once you’ve bought. As your equity grows, we’ll let you know when it’s time to refinance, restructure, or use your LVR to move forward.
Your deposit might stretch further than you realise. Book your FREE consultation with one of our Toowoomba Mortgage Brokers today.
