What does loan to value ratio (LVR) mean on my home loan?

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What’s a Loan to Value Ratio (LVR)?

Loan to Value Ratio (LVR) is the amount you are borrowing, represented as a percentage of the value of the property being used as security for the loan.

Calculating LVR

If the value of the property is $500,000 and you have a deposit of $100,000, you’d need a loan amount of $400,000. To calculate your LVR, divide the amount you need to borrow ($400,000) by the value of the property ($500,000) and multiply this by 100 to give you a percentage.

$400,000/$500,000 x 100 = 80%

Try our LVR calculator to quickly see how different deposit and purchase price options work out.

  Calculate your LVR


How to calculate LVR

What are the benefits of a lower LVR?

LVR is a key part of the loan assessment process and it can affect how much you can borrow from a lender. The LVR is used by lenders as a measure when assessing the risk of a loan. The higher your LVR is, the more of a risk your loan may be to a lender, and the lower your borrowing power may be.

Remember - the bigger your home deposit, the lower your LVR will be. A low LVR means that you are contributing more equity towards the property, and therefore are reducing the lenders’ exposure if you are unable to meet your repayments. This means that you may be eligible for more favourable interest rates or loan terms. This is why it’s important to keep in mind your LVR when figuring out how much you can borrow.

How your LVR influences your mortgage

Generally, an application with an LVR of 80% or more may be considered higher risk by a lender and as a result you may be required to pay Lenders Mortgage Insurance (LMI). LMI protects the lender if you default on your home loan. Even though you pay for it, LMI protects the lender - not you.

At Pepper, we don’t charge LMI on any of our home loans, but we do charge a risk fee based on your LVR known as a Lender Protection Fee (LPF).

Unlike traditional lenders, Pepper is self-insured so LPFs allow us to manage our own risks when it comes to assessing your home loan application, without having to seek third-party LMI approval and having it rejected at the last minute because of their criteria.

Note that on some Pepper home loan products we also accept up to 80% LVR before a risk fee applies. Learn more about LPFs here.

Loan to Value Ratio (LVR) Calculator

LVR is important in determining what products or rates you might be eligible for. See how your purchase price and deposit stack up using our LVR calculator. Remember, you'll need an LVR of 95% or less to apply for a home loan with us.

Hint The minimum deposit required on Pepper Money products is 5%

Want to know more?

If you have any questions or would like to discuss your home loan options, our friendly Lending Specialists are on hand to help. Call us on 137 377 or alternatively, request a call back here and we'll be in touch. 

Ready to see how much you could borrow with Pepper Money? Try our online calculator and find out in a few simple steps. 

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