Debt Management and Leverage

Margin lending

Loan to valuation ratio

The Loan to Valuation Ratio (LVR) establishes the percentage of borrowings in relation to the total valuation of the investment.

So if we look at the example again, the LVRs are as follows:

LVR 1 = $75,000 / $100,000 = 75%

LVR 2 = $25,000 / $50,000 = 50%

When the LVR becomes too high, you may trigger a margin call.

The Loan to Valuation Ratio increases if the value of the investment drops, or your amount of borrowing increases.