Loan-To-Value Ratio - LTV Ratio

Loading the player...

What is the 'Loan-To-Value Ratio - LTV Ratio'

The loan-to-value ratio (LTV Ratio) is 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)

BREAKING DOWN '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. 125% Loan

    A loan, usually a mortgage, with an initial loan amount equal ...
  2. First Mortgage

    A mortgage in a first lien position on the property that secures ...
  3. Piggyback Mortgage

    A type of mortgage where a second mortgage or home equity loan ...
  4. Qualifying Ratios

    A set of ratios that are used by lenders to approve borrowers ...
  5. Lender-Paid Private Mortgage Insurance

    Private mortgage insurance that a mortgage lender pays on behalf ...
  6. Risk-Based Mortgage Pricing

    Mortgage lenders' offers of different interest rates and loan ...
Related Articles
  1. Personal Wealth & Private Banking

    It Pays to Be a ‘HENRY’

    Why? Because being a “High Earner Not Rich Yet” may help you buy the house of your dreams with a lower down payment.
  2. Home & Auto

    How To Refinance If Your Home Appraisal Is Too Low

    When you take out a mortgage on a home or refinance an existing mortgage, most lenders want a loan-to-value ratio (LTV) of 80 percent or lower.
  3. Credit & Loans

    Understanding Loan-to-Value Ratio

    Loan-to-value ratio (LVR) is a tool used to evaluate the risk in a collateralized loan, usually a mortgage loan.
  4. Home & Auto

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  5. Home & Auto

    Shopping for a mortgage in 2016? Use this tool first.

    As home-buying technology has progressed, the process of finding the best mortgages rates for 2016 can all be done online.
  6. Credit & Loans

    Don't Get Overcharged for Your Mortgage

    Don't pay more for a mortgage than necessary. Here’s a quick look at the different categories and how to be sure you're getting the best deal.
  7. Investing Basics

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  8. Trading Strategies

    Financial Ratios to Spot Companies Headed for Bankruptcy

    Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
  9. Products and Investments

    Reverse Mortgages: Right for Clients? Not Often

    Reverse mortgages are a legitimate vehicle for folks age 62 and up to tap into the equity in their homes for other uses. Here's what to consider with them.
  10. Credit & Loans

    What is an Alt-A Mortgage?

    Called "liar loans" for their low documentation requirements, Alt-A mortgages were hot until the subprime crisis. Now Wall Street wants to bring them back.
RELATED FAQS
  1. Why does the loan-to-value ratio matter?

    Learn how the loan-to-value (LTV) ratio is calculated, and why this metric is important to lenders when evaluating a home ... Read Answer >>
  2. What industries use the loan to value ratio?

    Find out more about the loan-to-value ratio, what the ratio measures and what industries the loan-to-value ratio is most ... Read Answer >>
  3. What is a combined loan to value ratio?

    Learn what combined loan to value is, why it is important and how lenders use it, along with other ratios, to assess the ... Read Answer >>
  4. How do I calculate how much home equity I have?

    Find out how to calculate the home equity in your home, your home equity percentage and the loan-to-value, or LTV, based ... Read Answer >>
  5. How does the loan-to-value ratio affect my mortgage payments?

    Understand what the loan to value ratio is, how the ratio is calculated and learn how it has an impact on your mortgage payments ... Read Answer >>
  6. What price-to-book ratio is considered average in the chemicals sector?

    Learn more about the loan-to-value ratio, what the ratio measures and how to calculate the loan-to-value ratio on Microsoft ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center