What Is LVR and Why Does It Matter?
Loan-to-value ratio is the single most important number in property finance. Here's what it means and why every investor needs to know it.
Your Loan-to-Value Ratio (LVR) decides three things a lender cares about: how much you can borrow, what rate they'll offer, and whether you're paying Lenders Mortgage Insurance.
What is LVR?
Loan amount divided by property value, as a percentage.
Example: you buy a $600,000 property with a $480,000 loan. LVR = $480,000 ÷ $600,000 = 80%.
Why 80% is the number lenders watch
- Below 80% LVR: no LMI, better rates, an easier approval
- Above 80% LVR: LMI applies, and it isn't small; the fee alone can run past $10,000
- Above 90% LVR: the pool of lenders willing to look at you shrinks fast
How LVR moves as your property does
Property values climb, and LVR falls with them. Buy at 80% LVR, get 10% growth, and you're sitting closer to 73% — without paying down a single extra dollar of the loan. That gap between what the bank is owed and what the place is worth is usable equity, and it's what funds the next deposit.
Buy, let the market do its slow work, borrow against the equity, buy again. That's the loop most portfolios run on.
The takeaway
Watch your LVR on every property you hold. Once it drops below 80%, there's a decent chance you can fund the next deposit from equity you already have, not from another six months of saving.