KEYTAKEAWAYS
Learn about the Loan-to-Value Ratio (LVR), a financial metric used to evaluate borrowing risk by expressing the loan amount as a percentage of property or asset market value.
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DEFINITION
Loan-to-Value Ratio (LVR) – Assessing Borrowing Risk Through Property Valuation
The Loan-to-Value Ratio (LVR) is a financial metric that expresses the loan amount, typically used for a property or asset purchase, as a percentage of the market value of the acquired property or asset. Lenders employ this ratio to gauge the level of risk associated with a loan and assess the feasibility of recovering the loan amount in case of default.
Understanding the LVR is crucial for both borrowers and lenders, as it influences lending decisions and risk assessments. A lower LVR suggests a more conservative borrowing approach, while a higher LVR may signify a riskier lending scenario, potentially requiring additional safeguards, such as mortgage insurance.
