What Happens When Your LVR Changes?
Your LVR can rise or fall as your loan balance, property value, deposit or other borrowing details change. Learn what each change can mean for equity, borrowing, mortgage insurance, interest rates and refinancing.
Paying down your loan or an increase in property value can reduce LVR. Taking on additional debt or a decrease in property value can increase LVR. The effect of a changing LVR depends on the lender, loan product and your overall financial circumstances.
What Actually Makes Your LVR Change?
LVR is calculated by comparing the loan amount with the value of the property.
Because there are two main variables in this relationship, your LVR can change even if you do not make a new loan application.
Loan Balance Falls
Paying down the mortgage generally reduces LVR when the property value remains unchanged.
Loan Balance Rises
Additional borrowing can increase LVR when the property value remains unchanged.
Property Value Rises
A higher property value generally reduces LVR when the loan balance stays unchanged.
Property Value Falls
A lower property value generally increases LVR when the loan balance stays unchanged.
For the fundamentals, see What Is LVR? and How Is LVR Calculated? .
What Happens When You Pay Down Your Loan?
When you make principal repayments, your outstanding loan balance generally becomes smaller.
If the property value remains unchanged, the smaller loan produces a lower LVR.
Property value: $600,000
Original loan: $480,000
Original LVR: $480,000 ÷ $600,000 = 80%
New loan balance: $420,000
New LVR: $420,000 ÷ $600,000 = 70%
In this example, paying down $60,000 of the loan reduces LVR from 80% to 70%.
At the same time, the borrower's equity increases from $120,000 to $180,000.
Learn more: What Happens to LVR When You Pay Down Your Loan?
What Happens When Property Value Changes?
Your LVR can change even if your mortgage balance does not.
If the property value increases, the same loan represents a smaller percentage of the property's value.
If the property value decreases, the same loan represents a larger percentage.
| Property Value | Loan | LVR | Equity |
|---|---|---|---|
| $500,000 | $400,000 | 80% | $100,000 |
| $550,000 | $400,000 | 72.73% | $150,000 |
| $600,000 | $400,000 | 66.67% | $200,000 |
| $450,000 | $400,000 | 88.89% | $50,000 |
This illustrates why your LVR is not necessarily fixed for the entire life of a mortgage.
See: What Happens to LVR When Property Value Increases? and What Happens to LVR When Property Value Falls? .
What Happens if You Borrow More?
If you increase your loan balance without a corresponding increase in property value, your LVR rises.
For example, if your property is worth $500,000 and your loan increases from $300,000 to $350,000:
$300,000 ÷ $500,000 = 60% LVR
After:$350,000 ÷ $500,000 = 70% LVR
This can happen when additional borrowing, refinancing with extra funds, or other changes increase the amount secured against the property.
A higher LVR can change the lender's risk assessment and may affect available loan products, pricing, insurance requirements or eligibility.
Read How Does LVR Affect Borrowing? .
What Happens to Equity When LVR Changes?
LVR and equity are closely connected, although they are not the same measurement.
Equity is calculated as:
When you pay down the loan while property value stays the same, equity increases and LVR decreases.
When the property value rises while the loan remains unchanged, equity increases and LVR decreases.
The reverse can happen when debt increases or property value falls.
Continue with LVR vs Equity and What Is Property Equity? .
Can a Changing LVR Affect Interest Rates?
Potentially.
Some lenders use LVR bands or risk-based pricing when determining loan terms. Moving into a different LVR band may therefore affect the pricing available to a borrower.
However, there is no universal rule that every LVR reduction produces a lower interest rate.
Loan product, credit profile, income, market conditions and lender-specific pricing can also matter.
See Does LVR Affect Interest Rates? .
Can a Changing LVR Affect Mortgage Insurance?
It can, depending on the lender, country and loan product.
Some lending arrangements use LVR when determining whether mortgage insurance applies or how its cost is calculated.
A reduction in LVR may therefore change the insurance position of a loan, while an increase may have the opposite effect.
There is no single global threshold or insurance rule that applies to every mortgage.
Read LVR vs LMI and How Is LMI Calculated? .
Can a Changing LVR Affect Loan Approval?
A changing LVR can affect the risk profile of an application, but it does not determine approval by itself.
For example, a lower LVR may give a lender a larger equity buffer. A higher LVR may increase the lender's exposure relative to the property's value.
Lenders can also consider income, expenses, existing debt, credit history, property characteristics and other criteria.
Learn more: Does LVR Affect Loan Approval? .
Is a Lower LVR Always Better?
A lower LVR generally means a smaller loan relative to the property's value and a larger equity position.
However, a lower LVR is not automatically better in every financial situation. Using a larger amount of cash for a deposit can also reduce the cash available for emergencies, investments or other financial goals.
The appropriate balance depends on the borrower's overall circumstances and the loan terms available.
Explore: What Is a Low LVR? , What Is a High LVR? and What Is a Good LVR? .
Common LVR Change Scenarios
| Change | Typical LVR Effect | Typical Equity Effect |
|---|---|---|
| Pay down loan | ↓ LVR | ↑ Equity |
| Property value increases | ↓ LVR | ↑ Equity |
| Borrow additional funds | ↑ LVR | ↓ Equity |
| Property value decreases | ↑ LVR | ↓ Equity |
| Loan and property value both change | Depends on relative changes | Depends on relative changes |
The final result always depends on the relationship between the loan balance and property value, rather than on either number in isolation.
What Happens to LVR When You Refinance?
Refinancing can change your LVR if the new loan amount differs from the existing balance or if the property value used for the new assessment changes.
For example, refinancing to a smaller loan can reduce LVR, while refinancing and borrowing additional funds can increase it.
If your property value has also increased since the original loan was taken out, your new LVR may be substantially lower.
Use the Refinance LVR Calculator to compare your current and proposed position.
Related guides: What Is Refinance LVR? and How Does LVR Affect Refinancing? .
Can a Lower LVR Increase Usable Equity?
A lower LVR can correspond with a larger amount of equity, but usable equity is not necessarily equal to total equity.
A lender may apply a maximum LVR, affordability assessment, property valuation and other requirements before approving additional borrowing.
An educational estimate can be calculated by comparing a target maximum loan with the current loan balance.
This is only an estimate and should not be interpreted as a guaranteed borrowing amount.
See What Is Usable Equity? and LVR & Equity Calculator .
How Different LVR Levels Compare
| LVR | Loan on $500,000 | Difference From Property Value |
|---|---|---|
| 60% | $300,000 | $200,000 |
| 70% | $350,000 | $150,000 |
| 75% | $375,000 | $125,000 |
| 80% | $400,000 | $100,000 |
| 85% | $425,000 | $75,000 |
| 90% | $450,000 | $50,000 |
| 95% | $475,000 | $25,000 |
Calculate How Your LVR Has Changed
Check your current LVR, compare loan and property-value scenarios, or explore how your LVR could change with different borrowing assumptions.
Continue Exploring the LVR Guide
Explore related LVR, deposit, equity, borrowing and refinancing topics across the LVRcalc content cluster.
- What Is LVR?
- How Is LVR Calculated?
- LVR Formula
- How Does LVR Affect Borrowing?
- Does LVR Affect Loan Approval?
- Does LVR Affect Interest Rates?
- What Is a High LVR?
- What Is a Low LVR?
- What Is a Good LVR?
- LVR vs Equity
- LVR vs Deposit
- LVR vs LMI
- How to Lower Your LVR
- What Is Property Equity?
- What Is Usable Equity?
- LVR After Paying Down Your Loan
- LVR If Property Value Increases
- LVR If Property Value Falls
- What Is Refinance LVR?
- How Does LVR Affect Refinancing?
LVR Glossary
LVR: Loan-to-value ratio, calculated by comparing the loan amount with the property's value.
Loan balance: The outstanding amount owed on a mortgage or other property loan.
Property value: The value assigned to the property for the relevant calculation or lending assessment.
Equity: Property value minus the outstanding loan balance.
Target LVR: A selected LVR used to estimate a corresponding loan amount or borrowing position.
Explore the complete LVR Glossary .
Frequently Asked Questions
What causes LVR to change?
LVR changes when the loan balance or property value changes. Paying down the loan or increasing property value generally lowers LVR, while additional borrowing or falling property value generally raises it.
Does paying off my mortgage lower LVR?
Yes. Assuming the property value remains unchanged, reducing the outstanding loan balance reduces LVR.
Does an increase in property value lower LVR?
Generally, yes. If the loan balance stays unchanged, an increase in property value makes the loan a smaller percentage of the property's value.
Does falling property value increase LVR?
Generally, yes. If the loan remains unchanged while the property value falls, the loan represents a larger percentage of the property's value.
Can borrowing more increase LVR?
Yes. If additional borrowing increases the loan balance while the property value remains unchanged, LVR increases.
Can LVR change without refinancing?
Yes. Your LVR can change through regular mortgage repayments or changes in property value without any refinancing taking place.
Does a lower LVR mean more equity?
Generally, yes, when comparing the same property and loan relationship. A lower LVR means the loan represents a smaller share of the property value, leaving a larger equity share.
Can changing LVR affect interest rates?
It can. Some lenders use LVR bands in their pricing models. However, LVR is only one factor and a change in LVR does not guarantee a different interest rate.
Can changing LVR affect mortgage insurance?
It can depending on the lender, country and loan product. Higher or lower LVR may affect insurance requirements or costs in some lending arrangements.
Can LVR go above 100%?
Yes. If the outstanding loan is greater than the property's value, the LVR can exceed 100% and the borrower may have negative equity.
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