Loan-to-Value (LTV) Ratio

The Loan-to-Value (LTV) ratio is a financial measure that compares the amount of a loan to the value of the asset being purchased, usually a property. It is calculated by dividing the loan amount by the asset's appraised value and expressing it as a percentage. For example, if you want to buy a home worth $200,000 and borrow $150,000, your LTV ratio is 75%. A lower LTV indicates less risk for lenders, while a higher LTV may lead to higher interest rates or the need for private mortgage insurance, as it suggests more financial risk.