What is a good LVR? And what to do when yours creeps up

LVR is one division, and it decides a lot. Banks price loans off it, mortgage insurance switches on and off around it, and refinancing options open and close with it.

It also changes without you doing anything. A figure you worked out once at settlement can become wrong by tens of thousands of dollars in either direction.

What is LVR?

LVR, the loan-to-value ratio, is your loan balance divided by your property's value, as a percentage. Borrow $520,000 against a $650,000 property and your LVR is 520,000 ÷ 650,000 = 80%.

The remaining 20% is your equity, the slice of the property's value that's yours. LVR and equity always add up to 100%, so every point your LVR falls is a point of equity gained.

Lenders watch LVR because it measures their buffer. If a borrower defaults and the property has to be sold, an 80% LVR means prices can fall a fair way before the sale fails to cover the loan.

At 95%, almost any fall leaves the lender short. That explains LVR-based pricing and the insurance that starts above the line.

What counts as a "good" LVR?

No LVR is universally good, but 80% is the conventional line where Australian lending changes. Moneysmart, the government's money guidance site, puts it plainly: a 20% deposit, which means starting at an 80% LVR, is what avoids paying lenders mortgage insurance.

Past that threshold, a lower LVR is safer and a higher one is faster. A low LVR gives you a big equity buffer and access to sharper refinancing offers, while a higher LVR means your deposit went further and more of your money is exposed to growth, and to falls.

Investors deliberately run different LVRs depending on strategy, so we won't tell you what yours should be. Do know your current number, and know which side of 80% it sits on.

When do you pay lenders mortgage insurance?

LMI generally applies when your deposit is under 20% of the purchase price, that is, when your LVR exceeds 80%. The premium can run to thousands of dollars on a typical loan.

Two things about LMI are widely misunderstood. The first is who it protects: LMI insures the lender's shortfall if you default, while you pay the premium.

The second is that you can pay it more than once. Refinance to a new lender while your LVR is still above the threshold and you can be up for LMI again, which is a major reason the 80% line matters for refinancing decisions.

Exact policies vary by lender, and waivers exist for some professions and schemes. So treat 80% as a strong convention rather than a law of nature.

How does your LVR creep up without you borrowing more?

LVR rises whenever the value side of the ratio falls and the loan side doesn't fall enough to compensate.

Take the $520,000 loan that was an 80% LVR against a $650,000 valuation. If comparable sales in the suburb slide and the realistic value today is $580,000, the same loan is now 520,000 ÷ 580,000 = 89.7%.

Nothing happened on your bank statement, and the ratio still moved almost ten points. Four things push it up:

• Falling valuations. This one comes from the market. You can't control it, but you can find out early rather than at refinance time.
• Interest-only loans. On interest-only terms the loan balance never shrinks, so there's no amortisation quietly offsetting any fall in value. Principal-and-interest borrowers get a slow, automatic LVR improvement every month; interest-only borrowers don't.
• Redraws and equity releases. Borrowing against equity for a renovation or the next deposit raises the loan side of the ratio directly.
• Capitalised costs. Fees or LMI added to the loan at settlement start you above the LVR you thought you had.

What can you do when your LVR is heading the wrong way?

You only have two sides of the ratio to work with. On the loan side, principal-and-interest repayments shrink the balance every month, and extra repayments speed that up.

An offset buffer is worth understanding carefully here. It reduces your interest and your effective debt, but it does not change the headline LVR a lender calculates, because the loan balance itself is unchanged.

An offset does give you cash that could pay the loan down if crossing a threshold ever mattered enough. We've done the offset arithmetic in detail here.

What can you do on the value side?

On the value side, you can't push the market up, but you can document reality. A formal valuation when local sales support a higher figure is sometimes the cheapest LVR improvement available.

Which of these suits your situation is a conversation for a broker or adviser, not something we can call from here.

How does LVR affect refinancing?

LVR is usually the first number a refinance conversation turns on, because the new lender revalues the property and recalculates the ratio from scratch.

At or below 80%, the field of willing lenders is generally widest and no LMI complicates the sums. Above it, your options narrow and LMI can come back even though you may have paid it once already.

So check your current LVR at the usual refinance triggers: the end of a fixed term, a rate you've outgrown, an interest-only period expiring. It tells you which side of the 80% line you'll negotiate from.

How do you actually keep an eye on it?

Keep both sides of the ratio current: the live loan balance and an honest estimate of value. That habit is boring and it decides a lot.

Kleev automates it. It reads your loan balance from your lender statements, holds your valuation estimates alongside it, and shows your equity position as both move, with the loan's path forecast forward.

When a refinance moment arrives, you'll already know your number instead of discovering it. Watch your loan, equity and LVR move in Kleev →

Common questions

What is LVR?

LVR (loan-to-value ratio) is your loan balance divided by your property's value, expressed as a percentage. A $520,000 loan against a $650,000 property is an LVR of 80%. Lenders use it to price risk: the higher the LVR, the less equity buffer sits between the loan and the property's value.

What is a good LVR in Australia?

There's no single good number, but 80% is the conventional threshold that matters most: government guidance notes that a 20% deposit (which means an 80% LVR) is what avoids lenders mortgage insurance. Below 80%, borrowers generally access wider refinancing options; the lower the LVR, the bigger the equity buffer against falling valuations.

When do you have to pay lenders mortgage insurance (LMI)?

LMI is generally payable when your deposit is less than 20% of the purchase price, that is, when the LVR exceeds 80%, although specific policies vary by lender and some borrowers access waivers. LMI protects the lender, not you, and it can apply again on refinancing if your LVR is still above the threshold.

Can your LVR go up without borrowing more?

Yes. LVR is a ratio, so it rises whenever the property's value falls even if the loan hasn't changed. A $520,000 loan is an 80% LVR against a $650,000 valuation but almost 90% against a $580,000 valuation. Interest-only loans are more exposed to this, because the loan balance isn't shrinking to offset any fall in value.

What can you do when your LVR creeps up?

The levers are the two sides of the ratio: reduce the loan side (principal repayments, or building an offset buffer, which helps interest but not the headline LVR) or wait for and document the value side (paying for a valuation when local sales support it). Refinancing generally works best when LVR is at or below 80%, so knowing your current number tells you whether that door is open.