LVR Strategies: When to Stretch and When to Stay Conservative

Loan-to-Value Ratio (LVR) is one of the most important numbers in property investing. It determines how much you need upfront, whether you pay LMI, and how much risk you're carrying. Getting your LVR strategy right can be the difference between building a portfolio quickly and getting stuck.

What LVR actually means

LVR is the percentage of a property's value that you borrow. If you buy a $600,000 property with a $480,000 loan, your LVR is 80%. The remaining 20% is your equity (deposit plus costs).

• 80% LVR is the magic threshold. Below this, you avoid Lenders Mortgage Insurance (LMI). Above it, LMI kicks in and can add thousands to your costs.
• Most lenders will go up to 90% LVR for investors, and some will stretch to 95% for owner-occupiers.
• Your LVR changes over time as your property value increases and you pay down the loan.

The 80% threshold and LMI

LMI is a one-off insurance premium that protects the lender (not you) if you default. It applies when your LVR exceeds 80%.

• On a $600,000 property at 90% LVR, LMI might cost $8,000–$15,000 depending on the lender and insurer.
• LMI can usually be capitalised (added to your loan), so you don't pay it upfront — but you do pay interest on it for the life of the loan.
• Some lenders offer LMI waivers for certain professionals (doctors, lawyers, accountants) even at higher LVRs.
• LMI is not transferable. If you refinance, you may need to pay it again unless your new LVR is under 80%.

The case for higher LVR: getting in sooner

• Preserve cash reserves: Borrowing at 88% LVR instead of 80% on a $600,000 property saves you roughly $48,000 in upfront capital. That cash can serve as a buffer or fund the next deposit.
• Catch rising markets: If property values are growing at 8% per year and it takes you another 18 months to save the full 20% deposit, you may lose more in price growth than you'd save by avoiding LMI.
• Accelerate portfolio growth: Spreading your capital across two properties at 88% LVR rather than one at 80% gives you exposure to two growth assets instead of one.
• Time in the market: Property investing rewards time. Getting in 12 months earlier compounds over decades.

The risks of stretching your LVR

• Higher repayments: A bigger loan means bigger monthly commitments. If rental income drops or rates rise, you feel it more acutely.
• Negative equity risk: If you borrow at 90% and the market dips 10%, you owe more than the property is worth. This limits your ability to refinance or sell without a loss.
• Reduced borrowing capacity: Higher LVR on existing properties means more debt on your record, which can restrict your ability to borrow for the next purchase.
• LMI cost drag: The LMI premium, especially when capitalised, increases your total loan size and the interest you pay over the loan's life.

How to reduce your LVR over time

• Capital growth: As property values rise, your LVR drops naturally. A $600,000 property with a $480,000 loan (80% LVR) that grows to $700,000 drops your LVR to 69% without you paying a cent extra.
• Principal repayments: Every P&I repayment chips away at the loan balance, slowly reducing your LVR.
• Extra repayments: If you're on a variable loan, parking extra cash reduces the balance faster. Even small amounts compound over years.
• Revaluation: Request a formal revaluation from your lender if you believe the property has grown in value. A higher valuation lowers your LVR on paper and can unlock equity for your next move.

Cross-collateralisation: a warning

Some lenders will offer to use equity in an existing property as security for a new loan, tying both properties together. This is called cross-collateralisation and it's generally something to avoid.

• It gives the lender more control over your portfolio. If one property underperforms, they can force a sale of the other.
• It makes refinancing complicated because you can't move one loan without untangling the other.
• The better approach is standalone loans with separate security. Use an equity release (cash-out refinance) on property A to generate a deposit for property B, keeping each loan independent.
• A good mortgage broker will structure your loans to avoid cross-collateralisation from the start.

Deciding on your LVR strategy

• Conservative (70–80% LVR): Best when you have strong income, no urgency to grow fast, or are buying in a flat or uncertain market. Lower risk, lower cost, but slower growth.
• Moderate (80–85% LVR): Balances speed and risk. LMI cost is manageable and you preserve some capital. Suitable for most investors building their first few properties.
• Aggressive (85–90% LVR): Best when you're confident in the market, have strong income to service higher repayments, and want to accelerate. Requires a solid cash buffer for contingencies.
• Review regularly: Your ideal LVR changes as your portfolio matures, your income grows, and market conditions shift. Reassess at least annually.

Related guides

• Understanding LMI (Lenders Mortgage Insurance)
• Refinancing for Growth: Using Equity Without Losing Control