What Is Collateral Value?

The term collateral value refers to the 澳洲幸运5开奖号码历史查询:fair market value of the assets used to secure a loan. Collateral value is typically determined by looking at the recent sale prices of similar 🤡assets or having the asset appraised by a qualified expert.

Understanding Collateral Value

Collateral value is one of the key aspects considered by lenders when reviewing applications for 澳洲幸运5开奖号码历史查询:secured loans. In a secured loan, the lender has the right to obtain ow🐼nership of a particular asset—called the "澳洲幸运5开奖号码历史查询:collateral" of the loan—if the borrower defaults on their obligation. In theory, the lender should recover all or most of their investment by selling the collateral. Therefore, estimating the value of 🎐that collateral is a key step beജfore any secured loan is approved.

The 澳洲幸运5开奖号码历史查询:advance rate is used to value a collateral asset used to secure a loan. Such assets usually include real estate, motorized vehicles, and investment✤ and♛ insurance accounts.

Home Mortgage and Collateral Value

Secured loans can be made against all types of property. One of the most common types of secured loans is the 澳洲幸运5开奖号码历史查询:home mortgage, in which the house is given as collateral to secure the mortgage loan. In this situation, if th𒀰e borrower fails to make their mortgage payments🤪, the mortgage lender can sell the house to recuperate their investment.

Meanwhile, the collateral value of the house is typically determined by relying on an appraiser who specializes in 澳洲幸运5开奖号码历史查询:real estate. Other valuation metrics, such as recent tax assessments or comparable tr🎉ansactions, may also be consulted.

Example of Collateral Value

Depending on the type of asset being used as collateral, the collateral value methods may differ. For instance, if a loan is secured by 澳洲幸运5开奖号码历史查询:publicly-traded stock, then the current market price of those securities can be used when estimating its collate꧃ral value. 

In other cases, the collateral being used may be rarely traded on the market. For instance, a borrower might pledge collateral in the form of privately held shares or 澳洲幸运5开奖号码历史查询:alternative assets, such as fine art or rare collector's items. In these situations, an appraiser may need to use specialized valuation methods, such as calculating the value of the private shares by using 澳洲幸运5开奖号码历史查询:discounted cash-flow analysis (DCF). Meanwhile, fine art and other rare items may need to be appraised ꦕby specialists who are familiar with the private collector and auction markets for those typꦓes of assets.

Special Considerations

Typically, the size of the loan provided by a lender—known as the 澳洲幸运5开奖号码历史查询:borrowing base—will range from 70 to 90% of its collateral value. For instance, in the case of mortgage loans, lenders have traditionally offered 80% financing, which means that the borrower will need to provide a 20% 澳洲幸运5开奖号码历史查询:down payment. However, the loan's exact size will depend on several factors, such as the perceived reliability of its collateral value, the current state of the market, and the borrower's 澳洲幸运5开奖号码历史查询:credit rating.