LTV in Banking

LTV, or Loan-to-Value ratio, in banking measures the size of a loan relative to the appraised value of the asset being financed, typically real estate. For example, if a property is worth $200,000 and you take a $160,000 loan, the LTV is 80%. It helps lenders assess risk: a lower LTV usually indicates less risk, as the borrower has more equity in the property, while a higher LTV suggests higher risk. LTV influences loan eligibility, interest rates, and mortgage terms, playing a key role in lending decisions.