Australia’s property market continues to climb, with national prices hitting new record highs, with prices rising 4.10% annually (to August 2025). Lower interest rates are adding fuel, with the RBA cutting the cash rate to around 3.60% and lenders now offering fixed loans below 5.00%.
Strong immigration, tight housing supply and rising rents are driving fierce buyer competition. Government schemes like the Expanded Home Guarantee are also pulling more first-home buyers into the market. In this environment, understanding how debt and equity shape your mortgage has never been more important.
What is LVR?
Let’s start with a bit of theory to set the scene. In the industry, the “Loan to Value Ratio” (LVR) refers to the proportion between your loan amount and the value of your property expressed as a percentage. It’s something you want to keep in check, as it directly affects your borrowing power. A high LVR (around 90–95%) means you’re borrowing most of the property’s value, leaving you with less equity. This often comes with higher interest rates and the added cost of Lenders Mortgage Insurance (LMI). On the other hand, a lower LVR shows you’ve invested more equity, which lowers the risk for banks and non-bank lenders and can unlock better lending options.
Practical tip: Most lenders view 80.00% LVR or below as the “safe zone,” while anything above usually attracts extra costs and stricter approval criteria.
Why does it matter?
Your goal should be to maintain a low LVR, as this demonstrates you have solid equity in your property. Lenders see this as a sign of lower risk, which is exactly what they look for when offering sharper interest rates, fee waivers, or more flexible loan features. A healthy LVR not only boosts your chances of approval but also gives you greater bargaining power when negotiating with banks. Over time, as your property value grows and your loan balance reduces, your LVR will improve which will strengthen your financial position and open the door to refinancing opportunities on more competitive terms.
Benefits / Risks of a low LVR in a mortgage
- Lower repayments: Unlock access to more competitive interest rates and offers.
- Access to cash: Tap into your equity to fund renovations, investments, holidays, or other financial goals.
- Debt consolidation: Combine higher-interest debts, such as credit cards or personal loans, into your mortgage at a lower rate. Be careful on this one and you don’t want a 25 year car loan or a 25 year credit card balance transfer!
- Flexible loan terms: Enjoy greater refinancing options, faster approvals, and more choice in loan features.
Benefits / Risks of a high LVR in a mortgage
In the same way as too much risk is a danger, too little risk can mean you don’t use leverage as your ally and may not be able to keep up with the purchase costs of a property market where prices are increasing.
Lower repayments: Unlock access to more competitive interest rates and offers.
- Access to cash: Tap into your equity to fund renovations, investments, holidays, or other financial goals.
Understand the risks
While a low LVR can open doors to better rates and more flexibility, it’s not without its risks. Extending your loan term to secure lower repayments may lead to paying significantly more interest over the life of the loan, and in some case, the fees associated with refinancing can outweigh the potential savings. It’s also important to revisit why you set up your loan structure in the first place and if your original goal was to pay off your home sooner, refinancing to a longer term may work against that plan.
In sum, balancing debt and equity while keeping an eye on your LVR can make a big difference to your mortgage outcomes. For guidance on the best approach for your situation, our Locumsgroup experts are here to help.
