Loan-to-Value Ratio
The Loan-to-Value Ratio (LTV) is a financial term used by lenders to assess the risk of a mortgage loan. It compares the amount of the loan to the appraised value of the property being purchased. For example, if you're buying a house worth $200,000 and you borrow $160,000, the LTV is 80% (160,000 ÷ 200,000). A higher LTV indicates higher risk for the lender, which may result in higher interest rates or the requirement for private mortgage insurance (PMI). LTV helps both buyers and lenders understand financing and investment risk.
Additional Insights
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The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage. It compares the amount of the loan to the appraised value of the property. For example, if you want to buy a home valued at $200,000 and you apply for a $160,000 loan, the LTV ratio would be 80% ($160,000 ÷ $200,000). A higher LTV indicates greater risk for the lender, as it means a smaller investment by the borrower. LTV ratios can affect loan terms, interest rates, and whether private mortgage insurance is required.