What does LVR stand for and what does it indicate?

• A. Loan amount divided by property value; used to gauge risk and equity requirements.
• B. Interest rate divided by loan amount.
• C. Property value divided by loan term.
• D. Gross income divided by debt payments.

Answer: (A)

LVR stands for loan-to-value ratio, which shows the portion of the property's value that is financed by the loan. It is calculated by dividing the loan amount by the property's value (or purchase price) and expressing it as a percentage. This ratio reveals how much equity the buyer has in the property from the start. The higher the LVR, the less borrower equity and the greater the risk to the lender, which can lead to higher interest rates, stricter conditions, or the need for mortgage insurance. A lower LVR indicates more borrower equity and typically more favorable terms. The other options describe different measures (for example, a ratio of interest rate to loan amount, a value-to-term ratio, or a debt-service ratio), not the loan-to-value ratio.