The Mortgage-to-Value (MVR) Ratio is calculated by dividing the outstanding mortgage balance by the property’s appraised value and multiplying by 100. For example, a $300,000 loan on a $450,000 home results in an MVR of 66.7%. Lenders use this ratio to assess risk, with lower ratios (typically below 80%) indicating lower default risk and better loan terms.

The MVR is critical because it determines a borrower’s eligibility and borrowing costs. Lenders cap MVRs to limit exposure to property value declines. For instance, conforming loans (backed by Fannie Mae or Freddie Mac) require MVRs below 80%, while jumbo loans may allow up to 90%. Data from the Urban Institute (2021) shows that loans exceeding 90% LTV have default rates 2.3x higher than those below 80%. Additionally, the Federal Reserve (2022) notes that 75% of conventional loans with MVRs above 85% require private mortgage insurance (PMI), adding 0.5–1.5% to annual premiums. High LTV ratios also signal higher equity risk for lenders, as property devaluation directly impacts repayment capacity. Historical trends, such as the 2008 housing crisis, highlight the dangers of elevated MVRs: loans above 90% LTV had default rates exceeding 15%, compared to 4% for lower ratios. Thus, MVR acts as a key metric balancing borrower affordability and lender risk mitigation.