What is Loan To Value Ratio?
Loan-to-value (LTV) ratio is a measure that compares the amount of a loan to the value of the property being used as collateral. It is expressed as a percentage and is calculated by dividing the loan amount by the property value.
For example, if a property is valued at $100,000 and the borrower takes out a loan for $80,000, the LTV ratio would be 80% (80,000 / 100,000).
LTV ratios are often used by lenders to evaluate the risk of lending to a borrower and to determine the terms of the loan. A higher LTV ratio generally indicates a higher level of risk for the lender, as there is a greater amount of the loan relative to the value of the property. As a result, lenders may require higher interest rates or additional collateral for loans with higher LTV ratios.
LTV ratios are commonly used in the real estate industry, particularly when financing the purchase of a property. They can be an important consideration for borrowers, as they can impact the terms and cost of the loan.
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