Does LVR Affect Interest Rates?
Your loan-to-value ratio can influence how lenders assess risk, which may affect the interest rate, loan terms, fees or products available to you. Learn how LVR and borrowing costs are connected.
Yes, LVR can affect the interest rate you are offered. A lower LVR generally represents lower lender risk because you have more equity in the property. However, LVR is only one factor used when determining loan pricing and eligibility. Different lenders use different pricing models, so a lower LVR does not automatically guarantee a lower rate.
How Does LVR Affect Interest Rates?
LVR measures the size of a loan compared with the value of the property securing it. If two borrowers have similar financial profiles but one has a substantially lower LVR, the lower-LVR borrower may represent less risk to the lender.
This can matter because lenders may use different LVR bands when pricing mortgage products. In some cases, moving from one LVR band to another can change the interest rate or other loan costs.
To understand your starting position, use the LVR Calculator. If you're planning a purchase, you can also compare your deposit and resulting LVR with the LVR & Deposit Calculator.
Why Do Lenders Care About LVR?
LVR provides lenders with a simple way to assess the relationship between the amount borrowed and the value of the property used as security.
Imagine a property valued at $800,000 with a $400,000 loan. The LVR is 50%. The borrower therefore has substantial equity relative to the loan.
Now compare that with an $800,000 property supporting a $720,000 loan. The LVR is 90%. The lender is financing a much larger percentage of the property's value.
You can explore these examples further on our 50% LVR, 80% LVR, and 90% LVR guides.
How Is LVR Calculated?
LVR is calculated by dividing the loan amount by the property's value and multiplying the result by 100.
For a deeper explanation, see How Is LVR Calculated? You can also use the LVR Calculator to calculate it instantly.
Example: How LVR Can Relate to Loan Pricing
Consider a property worth $800,000. The borrower has different loan amounts depending on the LVR.
| 50% LVR | $400,000 loan |
| 70% LVR | $560,000 loan |
| 80% LVR | $640,000 loan |
| 90% LVR | $720,000 loan |
The higher-LVR scenarios require the lender to finance a larger percentage of the property's value. Depending on the lender, this can affect the available interest rate or loan pricing.
It does not mean that every lender will charge a higher rate at every higher LVR. Pricing structures vary. Always compare the actual loan offers available to you.
Calculate Your LVR First
Knowing your LVR makes it easier to understand which pricing or lending band you may fall into.
Calculate My LVRWhat Are LVR Pricing Bands?
Some lenders group loans into LVR ranges or bands. Each band may have different pricing, eligibility requirements or product availability.
For example, a lender could have different pricing for loans below a particular LVR level and another pricing structure above it. The exact bands are lender-specific and can change over time.
| LVR Range | General Consideration | Potential Pricing Effect |
|---|---|---|
| Lower LVR | More borrower equity relative to the loan. | May qualify for more competitive pricing with some lenders. |
| Mid-range LVR | Moderate level of property financing. | Pricing depends on the lender and product. |
| Higher LVR | Greater percentage of the property value is financed. | May result in different pricing, fees or requirements. |
These are general concepts rather than universal pricing rules. For specific thresholds, always check the lender's current product terms.
LVR Is Not the Only Factor That Affects Interest Rates
Even when LVR is important, lenders generally consider several other characteristics when assessing a mortgage.
- Credit history and credit profile
- Income and employment stability
- Debt and existing financial commitments
- Loan amount
- Loan purpose
- Loan term
- Fixed or variable interest structure
- Property type and security characteristics
- Lender-specific eligibility criteria
This is why two borrowers with the same LVR may not necessarily receive identical interest rates.
If you want to understand the amount of equity behind your LVR, see LVR vs Equity: What's the Difference? You can also use the LVR & Equity Calculator.
Can Lowering Your LVR Get You a Better Rate?
Potentially. If your lender uses LVR-based pricing, reducing your LVR enough to move into a lower pricing band could improve the interest rate or other loan terms available to you.
However, paying down your mortgage solely to obtain a lower rate is not always financially optimal. You should compare the potential interest savings with the amount of cash required to reduce the loan.
For example, if your property has increased in value, your LVR may already have fallen without you making additional repayments. Read How Does Property Value Affect LVR? to see how this works.
Similarly, making additional principal repayments can reduce your loan balance and therefore reduce your LVR. See How Does Loan Balance Affect LVR?.
How Does Your Deposit Affect LVR and Interest Rates?
For a new property purchase, a larger deposit generally means a smaller mortgage relative to the property value.
That produces a lower LVR.
Depending on the lender's pricing structure, a lower LVR may then provide access to more competitive mortgage pricing.
Use the LVR & Deposit Calculator to see how different deposits change your LVR.
You can also read LVR vs Deposit: What's the Difference? and How Much Deposit Do I Need?.
What About Mortgage Insurance?
LVR can also be connected to mortgage insurance requirements or costs in some lending markets. Higher LVR borrowing can create additional insurance considerations depending on the country, lender and loan product.
Mortgage insurance and interest rates are separate costs, however. A higher LVR does not mean that mortgage insurance itself is an interest rate.
Learn more in LVR vs LMI, What Is Mortgage Insurance?, and How Is LMI Calculated?.
Does LVR Affect Interest Rates When Refinancing?
It can. When refinancing, lenders may assess the current value of the property and the proposed loan amount to determine the new LVR.
If your property's value has increased or your loan balance has fallen, your new LVR may be lower than it was when you originally borrowed.
A lower LVR could potentially improve the range of refinancing options available to you, including pricing with lenders that use LVR-based pricing.
Start with the Refinance LVR Calculator and then explore How Does LVR Affect Refinancing?.
What Happens When Your LVR Changes?
Your LVR can change even when you do not change your mortgage product.
The two main variables are:
- Your outstanding loan balance
- The current value of the property
Paying down the loan generally reduces LVR. An increase in property value can also reduce LVR because the same loan becomes a smaller percentage of the property's value.
Conversely, if the property value falls while the loan balance stays unchanged, LVR increases.
Read What Happens When Your LVR Changes? for a complete explanation.
LVR and Interest Rates: What Should You Compare?
When comparing mortgages, looking only at the advertised interest rate can give you an incomplete picture.
Consider the overall cost and conditions of the loan, including:
- Interest rate
- Annual or ongoing fees
- Upfront fees
- Mortgage insurance where applicable
- Fixed-rate restrictions
- Early repayment conditions
- Offset or redraw features where applicable
- Loan flexibility
Related LVR Guides
Continue building your understanding of loan-to-value ratio with these related guides:
- What Is LVR?
- How Is LVR Calculated?
- What Is a Good LVR?
- What Is a High LVR?
- What Is a Low LVR?
- How Does LVR Affect Borrowing?
- Does LVR Affect Loan Approval?
- LVR vs Equity: What's the Difference?
- LVR vs Deposit: What's the Difference?
Frequently Asked Questions
Does a higher LVR always mean a higher interest rate?
No. Some lenders use LVR-based pricing while others may use different pricing models. A higher LVR can be associated with higher risk, but it does not automatically mean your interest rate will be higher.
Can a lower LVR help me get a better mortgage rate?
It can. If a lender offers different pricing at different LVR levels, reducing your LVR may move you into a more competitive pricing band.
What LVR is considered low?
There is no single worldwide definition of a low LVR. In general, a lower percentage means the borrower has more equity relative to the loan. See our What Is a Low LVR? guide.
Does LVR affect loan approval as well as interest rates?
It can. LVR may be one part of a lender's risk assessment, alongside income, credit history, existing debt, loan purpose, property characteristics and other criteria. See Does LVR Affect Loan Approval?.
Can my LVR fall without paying down my mortgage?
Yes. If the value of your property increases while your loan balance remains unchanged, your LVR decreases.
Can refinancing change my LVR?
Yes. A different refinance loan amount and a new property valuation can result in a different LVR.
Does LVR affect mortgage insurance?
It can. Mortgage insurance requirements and pricing may depend on LVR in some markets and lending products. The exact rules vary by country and lender.
Know Your LVR Before Comparing Loans
Calculate your current loan-to-value ratio, understand your position and then explore how changes in your loan balance, property value or deposit could affect your LVR.
Calculate Your LVR