Our Loan to Value Ratio (LVR) Calculator helps you quickly calculate your loan to value ratio (LVR), one of the most important figures lenders use when assessing your home loan application.
Whether you’re buying your first home, upgrading, investing in property, or refinancing an existing mortgage, knowing your LVR can help you understand your borrowing position, estimate your required deposit, determine whether you’ll need to pay Lenders Mortgage Insurance (LMI) and improve your chances of securing a competitive home loan.
Simply enter your property value and loan amount, and our calculator will instantly estimate your LVR and explain what it means for your home loan.
What is a Loan to Value Ratio (LVR)?
Loan to value ratio is the percentage of a property’s value that you’re borrowing. Lenders use your LVR to measure the level of risk associated with your home loan application. The lower your LVR, the less risk you represent because you’re contributing a larger deposit and borrowing less against the property’s value.
At the same time, a higher LVR means you’re borrowing a greater proportion of the property’s value, which generally increases the lender’s risk. As a general rule, the larger your deposit, the lower your LVR will be.
How is Loan to Value Ratio Calculated?
Calculating your loan-to-value ratio is pretty straightforward. You just add some numbers together, and the answer is accurate and immediate.
The formula is: LVR = (Loan Amount ÷ Property Value) x 100.
For instance, if your loan amount is $450,000 and your property value is $500,000. Your LVR will be: ($450,000 ÷ $500,000) x 100 = 90%
Here, a 90% LVR means you’re borrowing 90% of the property’s value and contributing a 10% deposit.
How to Use Our LVR Calculator?
Using our loan to value ratio calculator is quick and easy. Simply enter the following information: your property value, loan amount and your target LVR.
Once you’ve entered your details, the calculator will instantly estimate your loan to value ratio (LVR), your deposit amount, your deposit percentage, whether your LVR is considered low, moderate or high, whether you may need to pay Lenders Mortgage Insurance (LMI) and how your LVR may affect your home loan application.
The results are estimates designed to help you better understand your borrowing position before speaking with a lender or mortgage broker.
Why is Understanding Loan to Value Ratio Important?
Your loan-to-value ratio is one of the key factors lenders consider when assessing your mortgage application. A lower LVR generally means you have a greater chance of home loan approval, access to lower interest rates, better loan features, lower borrowing costs and less risk of paying Lenders Mortgage Insurance (LMI). Whereas, a higher LVR can result in higher interest rates, stricter lending criteria, reduced borrowing capacity, larger repayments and the need to pay extra as LMI.
Due to its impact on loan approval and borrowing costs, improving your LVR before applying for a home loan can potentially save you thousands of dollars over the life of your mortgage.
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) is insurance that protects the lender, not the borrower, if the loan goes into default. In Australia, many lenders require borrowers to pay LMI when borrowing more than 80% of a property’s value.
Although LMI increases the upfront cost of buying a home, it allows eligible borrowers to enter the property market sooner without waiting to save a full 20% deposit. Depending on your circumstances, certain government schemes may allow eligible buyers to purchase with a smaller deposit while avoiding LMI.
What is a Good LVR in Australia?
There isn’t a single ideal LVR because every borrower’s situation is different. However, many lenders consider an LVR of 80% or less to be a strong borrowing position.
First home buyers often purchase with higher LVRs because they have smaller deposits. Fortunately, many lenders offer products designed specifically for first home buyers, and eligible government assistance programs may help reduce upfront costs.
How is Loan to Value Ratio Calculated When Refinancing?
When refinancing, your loan-to-value ratio is based on your current home loan balance and your property’s current market value.
For example, if your outstanding loan is $520,000 and your home is now worth $700,000, your LVR would be approximately 74.3%.
A lower LVR when refinancing can help you qualify for better interest rates, access a variety of lenders, reduce your borrowing costs and avoid paying lenders’ mortgage insurance (LMI).
If your property has increased in value or you’ve paid down your mortgage, refinancing may significantly improve your borrowing position.
Tips to Improve Your LVR
Even a small reduction in your LVR can improve your borrowing options and reduce your overall loan costs. If your LVR is higher than you’d like, there are several ways to reduce it before applying for a home loan or refinancing.
- Save a larger deposit before purchasing.
- Pay down your existing home loan faster with extra repayments.
- Avoid increasing your loan balance unless necessary.
- Renovate or improve your property to increase its value.
- Wait for property values to rise before refinancing.
- Compare lenders, as maximum LVR policies differ between financial institutions.
