LTV Ratio (Loan-to-Value Ratio)

The Loan-to-Value (LTV) Ratio is a financial term used in lending that compares the amount of a loan to the value of the property being purchased. It is calculated by dividing the loan amount by the appraised value of the property. This ratio helps lenders assess risk; a lower LTV indicates less risk, as the borrower has more equity in the property. For example, if you're buying a home worth $200,000 and you take out a $160,000 loan, your LTV is 80%. Higher LTV ratios can lead to higher interest rates or require mortgage insurance.