Loan-to-Value Ratio (LTV)

The Loan-to-Value Ratio (LTV) is a financial term used to assess the risk of a loan, particularly in real estate. 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 borrow $160,000, your LTV is 80% ($160,000 loan ÷ $200,000 property value). A higher LTV indicates more risk for lenders, as it suggests that a larger portion of the property's value is financed, which could lead to greater losses in the event of default or market fluctuations.