Which statement correctly defines LVR and its impact?

• A. LVR is calculated as annual income divided by loan amount.
• B. LVR equals property value ÷ loan amount.
• C. LVR equals loan amount ÷ property value; higher LVR indicates greater risk, can trigger LMI and influence interest rates and approval.
• D. LVR is a fixed percentage determined by the lender and never changes.

Answer: (C)

LVR measures the loan relative to the property’s value. It is calculated by dividing the loan amount by the property value. This ratio directly reflects risk to the lender: the higher the LVR, the greater the risk if property prices fall or the borrower defaults. That increased risk can trigger Lenders Mortgage Insurance (LMI) and influence both the interest rate offered and whether the loan is approved.

The correct statement matches this definition and impact. The other options don’t fit because they either misuse the components of the ratio (income divided by loan amount, or the inverse ratio of property value divided by loan amount) or describe LVR as fixed, which it isn’t—LVR can change with different loan amounts or property values.