Loan-to-Value Ratio
In real estate finance, the loan-to-value ratio, often abbreviated as LTV, is a measure used by lenders to compare the amount of a proposed loan to the value or selling price of a property. It is expressed as a percentage and helps indicate the level of risk associated with a mortgage or other real estate loan.
The ratio is calculated by dividing the loan amount by the appraised value or purchase price of the property, whichever is lower. A lower loan-to-value ratio generally reflects a larger equity contribution by the borrower and is viewed by lenders as less risky, while a higher ratio indicates greater leverage and may result in stricter loan terms, higher interest rates, or additional requirements such as mortgage insurance.
