What is LTV?

What is LTV?

The loan-to-value (LTV) ratio is an assessment of lending risk that financial institutions and other lenders examine before approving a mortgage. Typically, loan assessments with high LTV ratios are considered higher risk loans.

KEY TAKEAWAYS

  • Loan-to-value (LTV) is an often used ratio in lending to determine the amount necessary to put in a down-payment and whether a lender will extend credit to a borrower.
  • Most lenders offer LTV from 50% to 80%, which is from loan against shares to mortgages. Understanding the Loan-to-Value (LTV) Ratio

    Interested homebuyers can easily calculate the LTV ratio of a home.

    LTV = (Total Loan Outstanding)/ (Market Price of the Asset) in %

    Lenders assess the LTV ratio to determine the level of exposure to risk they take on when underwriting. When borrowers request a loan for an amount that is at or near the appraised value (and therefore has a higher LTV ratio), lenders perceive that there is a greater chance of the loan going into default. This is because there is very little equity built up within the property.

    How LTV is Used by Lenders

    A LTV ratio is only one factor in determining eligibility for securing a credit against Shares and Mutual Funds. Lower the price movement in the underlying security, lower the Risk and higher the LTV.