LTV (Loan-to-Value) Ratio

The Loan-to-Value (LTV) ratio is a financial metric used to assess the risk of lending. It compares the amount of a loan to the appraised value of the property being purchased. For example, if you want to buy a home worth $200,000 and take out a $160,000 mortgage, your LTV ratio is 80% ($160,000 divided by $200,000). A higher LTV indicates more risk for lenders, often leading to higher interest rates or the need for mortgage insurance, as it suggests the borrower has less equity in the property.