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

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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.

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.

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%

How to calculate LVR

A higher LVR

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.

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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