Home Truths /LVR (loan-to-value ratio) explained

Understanding LVR

4 min read | 7 Jan 2022

Learn - LVR Hero
Learn - LVR Hero

Having a good LVR percentage puts you in with a really good shot at getting a loan application approved.

But what is an LVR and why is having a low one such a big deal? Below you’ll find a clear LVR definition plus the maths on how LVRs are calculated. You’ll also see how lowering your LVR over time reduces your loan’s variable interest rate (well, that’s a bonus you get when you’re with Athena, anyway).

So, what is LVR?

LVR stands for Loan-to-Value Ratio. Basically, it’s a number that shows what percentage the borrowed amount is compared to the overall price of the property.

The LVR % is super-important to lenders because they use it to judge how much risk they think they’d be taking on by approving a home loan application. The higher the LVR, the higher the risk. Basically, the more you need to borrow, the more risky you are as a customer!

If you’re a borrower, working out the LVR is also important because it shows you how much of a deposit you’ll need to save up to get the home loan you need.

How do you calculate an LVR?

To work it out, you divide the loan amount you’re borrowing by the property price, then multiply the answer by 100 to get a percentage.

For example: You have a deposit of $200,000 and want to purchase a $700,000 valued property. You would need to borrow $500,000, putting your LVR would at 71%.

$500,000/ $700,000 X 100 = 71%

Why is 80% the magic number for an LVR?

If you’ve managed to save up a sizeable deposit of 20% or more of the property price, you look like a safe bet. Having that sort of upfront deposit finance gets the LVR to 80% or lower, and those are the kinds of numbers that most lenders are happy to sign off on.

There is still a chance your loan application might be accepted if the LVR is higher than 80%, but you would definitely need to buy Lenders Mortgage Insurance (LMI) to protect the lender. LMI is a one-off payment that is added to the home loan that acts to protect the lender. Athena’s rates start at 80% LVR, so we don’t offer LMI loans.

Reducing your LVR will reduce your interest rate with us

At Athena, we’re really into helping our customers pay down their home loans sooner, and we want to save them money along the way. That’s why we’ve come up with a way they can lower their variable interest rate as a reward for lowering their loan’s LVR. 

We call it AcceleRATES and it’s an award-winning feature made up of 3 LVR percentage tiers matched to 3 decreasing variable interest rates.

With AcceleRATES, as you pay down your loan and reach the next lower LVR tier, we’ll lower your interest rate automatically. You don’t even have to ask. It’s an Aussie first!

If you want more certainty with a fixed rate, we’ll also apply LVR discounts. The lower your LVR is at the start of the fixed rate period, the lower your rate when you finish your set period! We’ll automatically roll you onto the lowest AcceleRATE tier that you’re eligible for. Learn more about our fixed rates.

How much LVR do I need for an investment property?

At Athena, a LVR of 80% or lower should get you into the game. In certain cases, depending on where the property is, what type it is, or if it’s valued over $2.5 million, you’ll need a 70% LVR.

Work out your LVR on an investment property purchase and see how much you could borrow.

If you’re looking for a loan and your number-crunching is looking ace, take a look at our award-winning Investor Home Loans. They’ve got zero Athena fees, seriously low interest rates, and as we’ve already mentioned, the ability to reduce your interest rate over time as you lower your LVR.

See? We told you LVR is a big deal. Make yours work for you.

You’ve got nothing to lose except your home loan!

Start saving a whole lotta time and money

Athena acknowledges the traditional owners of the land on which we gather the Gadigal people of the Eora nation. We acknowledge that sovereignty was never ceded and respect their continued and continuing connection to this place.