Loan-To-Value Ratio - LTV Ratio

AAA

DEFINITION of 'Loan-To-Value Ratio - LTV Ratio'

A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance.

Calculated as:

Loan To Value Ratio (LTV Ratio)

INVESTOPEDIA EXPLAINS 'Loan-To-Value Ratio - LTV Ratio'

For example, Jim needs to borrow $92,500 to purchase a $100,000 property. The LTV ratio yields a value of about 92.5%. Since bankers usually require a ratio at a maximum of 75% for a mortgage to be approved, it may prove difficult for Jim to get a mortgage.

Similar to other lending risk assessment ratios, the LTV ratio is not comprehensive enough to be used as the only criteria in assessing mortgages.

RELATED TERMS
  1. Loan-To-Cost Ratio - LTC

    A ratio used in commercial real estate construction to compare ...
  2. Loan Modification Specialist

    A mortgage specialist who deals specifically with loan modifications. ...
  3. Total Debt Service Ratio - TDS

    A debt service measure that financial lenders use as a rule of ...
  4. Combined Loan To Value Ratio - ...

    A ratio used by lenders to determine the risk of default by prospective ...
  5. Alt-A

    A classification of mortgages where the risk profile falls between ...
  6. No-Ratio Mortgage

    A mortgage program in which a borrower's income isn't used or ...
Related Articles
  1. Texas Ratio Rounds Up Bank Failures
    Personal Finance

    Texas Ratio Rounds Up Bank Failures

  2. Mortgages: How Much Can You Afford?
    Budgeting

    Mortgages: How Much Can You Afford?

  3. The Benefits Of Mortgage Repayment
    Home & Auto

    The Benefits Of Mortgage Repayment

  4. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center