LTV - Loan to Value
The ratio of a loan amount against the value of the property being
used as collateral. A property valued at $100,000 with a loan request against the asset
of $50,000 would have a loan-to-value ratio of 50%.
Loan to value is one of the key risk factors that lenders assess when qualifying
borrowers for a mortgage. The risk
of default is always at the forefront of lending decisions, and the likelihood of a
lender absorbing a loss in the foreclosure process increases as the amount of equity
decreases.
Example:
If a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is
$130,000/$150,000 or 87%.
