When buying a home in Australia, the size of your deposit matters far more than most first-time buyers realise. It determines your LVR, which lenders use to assess your home loan and impacts factors like your interest rate. It’s the number that matters most to lenders processing applications, so it’s important to find out exactly what LVR is and how it works before you apply.
What is LVR?
LVR’s meaning is simple: it stands for loan to value ratio. It’s a percentage figure that represents the size of your home loan relative to the value of the property you’re buying. Lenders use it as their primary measure of risk when assessing a home loan application. Home loans with higher LVR are considered a higher risk, as the bank stands to lose more if the buyer defaults on their mortgage.
How to calculate LVR
Calculating your LVR is straightforward. Simply divide your loan amount by the property's value, then multiply by 100 to get your percentage.
For example, let’s say you're buying a home worth $600,000 and have a $120,000 deposit. You'll need to borrow $480,000 to complete the purchase. To calculate your LVR, run the following numbers:
- $480,000 ÷ $600,000 = 0.8
- 0.8 x 100 = 80% LVR
How much deposit do I need for a home loan?
Most lenders in Australia will approve a home loan with a minimum deposit of 5%, depending on your profile as a borrower and your loan serviceability. This would give you an LVR of 95%.
However, borrowing above 80% LVR means you'll need to pay lenders mortgage insurance (LMI), which protects the lender if you default on your loan. To avoid LMI entirely, you'll need a deposit of at least 20% of the property's value, bringing your LVR to 80% or below.
When is a higher minimum deposit required?
In some cases, lenders will require a larger deposit regardless of your financial situation. Properties that are considered harder to sell in the event of a default carry more risk for the lender, so they'll often cap the maximum LVR at a lower level. This can apply to:
- Properties in rural or remote areas, where the pool of potential buyers is smaller
- Unusual property types, such as those with non-standard features or construction materials
- Properties in areas that have struggled to sell consistently in recent months or years
- Properties in areas with a high concentration of the same type of dwelling, such as inner-city apartment blocks, which may impact future value
- Borrowers who have struggled with their credit in the past
In these situations, lenders may require a deposit of anywhere between 20% and 40%, so it's worth checking with your lender early if you're considering an unconventional purchase.
The benefits of applying for a home loan with a lower LVR
Spend less on interest
Borrowing less means paying less interest over the life of your loan. The difference can be significant, as the table below shows using a property value of $800,000 across a 30-year loan term:
| Loan amount | LVR | Deposit | Loan term | Interest rate | Monthly payments | Total interest paid |
|---|---|---|---|---|---|---|
| $720,000 | 90% | $80,000 | 30 years | 6.60% p.a. | $4,598 | $935,404 |
| $680,000 | 85% | $120,000 | 30 years | 6.60% p.a. | $4,343 | $883,437 |
| $640,000 | 80% | $160,000 | 30 years | 6.30% p.a. | $3,961 | $786,113 |
| $600,000 | 75% | $200,000 | 30 years | 6.30% p.a. | $3,714 | $736,981 |
| $560,000 | 70% | $240,000 | 30 years | 6.15% p.a. | $3,412 | $668,204 |
| Figures are illustrative only and based on a property value of $800,000. Interest rates will vary by lender and borrower profile. | ||||||
Lower interest rates
One of the biggest advantages of a lower LVR is access to better interest rates. Lenders price their home loans in tiers based on risk, and borrowers with a lower LVR are rewarded with more competitive rates. This can be as little as 0.05% or as much as 0.30% to 0.40% p.a. in some cases, but even a small reduction can save you tens of thousands overall, as the table above demonstrates.
Avoiding lenders mortgage insurance
Keeping your LVR at 80% or below means you won't need to pay LMI. This is a significant saving, as LMI premiums can add thousands of dollars to your loan depending on your borrowing amount and LVR.
| Loan Amount | LVR | Estimated LMI Cost |
|---|---|---|
| $500,000 | 85% | $4,706 |
| $500,000 | 90% | $8,200 |
| $500,000 | 95% | $13,278 |
| LMI costs are calculated based on a first home buyer basis using the LMI fee estimator from Helia. These are estimates only and will vary by lender. | ||
A stronger equity position
Starting your loan with a larger deposit means you own more of your property from day one. This puts you in a stronger financial position if property values fluctuate, and gives you access to usable equity sooner, which can be helpful if you want to renovate or invest in the future.
How to lower LVR on your home purchase
- Save a larger deposit: the most straightforward way to lower your LVR is to save more before you buy. Even an extra few percentage points can make a meaningful difference, particularly if it brings you closer to the 80% threshold and helps you avoid substantial LMI charges.
- Look for a lower-priced property: buying a less expensive property relative to your savings means your deposit goes further, resulting in a lower LVR from the outset. This might mean considering a different suburb, a smaller property type or buying an older home with renovation potential.
- Take advantage of first home buyer programs: incentives such as the First Home Owners Grant (FHOG) can give you between $10,000 and $50,000 towards your first home, provided you’re eligible and depending on which state or territory you’re buying in.
What are my options for home loans above 80% LVR?
Saving a 20% deposit isn't always an option, particularly in Australia's current property market. The good news is that there are several avenues available to borrowers who need to borrow more than 80% of their property’s value.
High LVR home loans
Many lenders will approve home loans up to 95% LVR, meaning you only need a 5% deposit to get into the market. The trade-off is that, as mentioned, you'll pay LMI and likely face a higher interest rate, so it's worth weighing up the cost of waiting to save a larger deposit against the cost of entering the market sooner.
Guarantor home loans
A guarantor home loan allows a family member to use the equity in their own property as additional security for your loan. Guarantors are most commonly parents or grandparents, but may also be siblings or other close family members. This can bring your effective LVR below 80%, helping you avoid LMI without needing a larger deposit.
With the help of a guarantor, you may be able to borrow as much as 100% of the property’s value. However, it’s important to keep in mind that the guarantor takes on financial risk if you default, so it's a decision that requires careful consideration from both parties.
The Australian Government 5% Deposit Scheme
The Australian Government 5% Deposit Scheme allows first home buyers to purchase property with as little as a 5% deposit, and single parents or legal guardians with as little as 2%, without paying LMI.
From 1 October 2025, the scheme was expanded to remove income caps and waitlists, making it accessible to a broader range of buyers. You’ll apply through a participating lender, rather than directly to the government.
Australian Government Help to Buy Scheme
The Help to Buy Scheme is a shared equity scheme where the Australian Government contributes up to 30% of the purchase price for an existing home, or up to 40% for a newly built home. Eligible buyers need a minimum 2% deposit and must have a taxable income of no more than $100,000 for individual applicants, or $160,000 for single parents and joint applicants.
Unlike the 5% Deposit Scheme, it holds a proportional equity share in the property, which is repaid when you sell or choose to buy back the government's share over time. There are 10,000 places available each year.
