KEYTAKEAWAYS
Explore the meaning of a Margin Call, a protective measure in high-risk loans, where lenders request additional payments to restore the Loan-to-Value Ratio (LVR) to the agreed level.
CONTENT
DEFINITION
Margin Call – Mitigating Risk in Loan-to-Value Ratios
A Margin Call is a financial term applied primarily to higher-risk loans, such as margin loans, and is triggered when the value of a property or asset secured by the loan falls below a predetermined Loan-to-Value Ratio (LVR). In this scenario, the lender requires the borrower to make additional payments to restore the LVR to the agreed-upon percentage.
Understanding the concept of a Margin Call is vital for borrowers engaging in high-risk financial transactions, where the value of the collateralized assets can fluctuate significantly. It serves as a protective measure for lenders, ensuring that the borrower maintains sufficient equity in the secured property, reducing the risk of loan default.
