Loan to Value Ratio

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Loan to Value Ratio

1. In mortgages, the ratio of the amount of a potential mortgage to the value of the property it is intended to finance, expressed as a percentage. It is used as a way to assess the risk of making a particular mortgage loan. A lower loan-to-value ratio is seen as a lower risk to the lender. Most mortgage lenders require a maximum loan-to-value ratio of 75%. That is, a borrower is usually expected to pay for 25% of the value of a property out-of-pocket.

2. More broadly, a ratio of the amount of a potential loan to the asset it is intended to finance. In addition to gauging the risk involved in making the loan, it tells the borrower whether or not the loan can be repaid if he/she sells the asset. This can be important if the borrower becomes unable make payments.
References in periodicals archive ?
As of the cut-off date, the collateral for series 2004-PW1 had a weighted average original loan-to-value (OLTV) of 92.
The loan was written for a term of 10 years with a 25-year amortization and a loan-to-value of 69 percent.
When they do reappear, rating agencies will likely be harder on them, enforcing lower loan-to-values for CMBS players in an effort to avoid an instant replay of last fall's debacle.
Assuming full occupancy, the loan underwrote to an 83 percent loan-to-value with a 1.
IHE has serviced home equity loans, home equity lines of credit, and high loan-to-value loans for over 11 years.
When competition is very hot between lenders, there are only a few things that can give: rates, loan-to-value ratios and valuations.
7% of the mortgage loans were originated under other programs of Residential Funding that permit mortgage loans with loan-to-value ratios in excess of 95%.
Positive performance based on observations of arrears data per year of origination and original loan-to-value ratios led us to reduce our default assumptions under the new approach,' says Celi.
The maximum permitted loan-to-value from 31 December 2008 is 55%;
At the expiration of the loan in 3 to 5 years, with the improved performance of the hotel and the market, the mezzanine provider is counting on their initial 85% to 90% loan-to-value loan, now being only a 60% loan, easily financeable with new first mortgage proceeds.
Lenders know, for example, that the probability of default, as well as the extent of the loss resulting from default, is strongly related to the loan-to-value ratio of the mortgage: The higher the ratio, the greater the likelihood of default and the larger the potential loss.