Quick Definition

The Loan-to-Value Ratio (LTV) is a financial metric used by lenders to assess the risk of a loan by comparing the amount of the loan to the value of the asset securing the loan.

Formula

Examples

• 1A homebuyer purchases a house valued at $200,000 and takes out a mortgage of $150,000. The LTV ratio would be 75%, indicating the loan covers 75% of the property's value.
• 2An investor refinances a property appraised at $300,000 with a new loan amount of $270,000. The resulting LTV ratio is 90%, showing a higher risk level due to the higher proportion of borrowed funds.
• 3A business owner uses a commercial property worth $500,000 as collateral for a $400,000 loan. The LTV ratio of 80% reflects the loan amount relative to the property's value.

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