loan-to-value ratio

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Loan-to-value ratio (LTV)

The ratio of money borrowed on a property to the property's fair market value.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

loan-to-value (LTV) ratio

The relationship between the principal amount of a loan and the appraised value of the property serving as security. A loan of $80,000 on a property appraised at $100,000 is an 80 percent LTV.Residential mortgages with an LTV of 80 percent or less qualify for FHA insurance; if the ratio is higher, then borrowers may be required to obtain private mortgage insurance.Generally speaking, the higher the LTV, the higher the interest rate will be because the lender has assumed more risk.Those risks are as follows:(1) When there is little equity in the property, it has a low hostage value; the borrower is more likely to default and walk away from the property because the borrower has little to lose. (2) At foreclosure, the property may not bring a price sufficient to pay off the principal balance of the loan, much less the accrued interest and costs of foreclosure.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.

Loan-to-Value Ratio (LTV)

The loan amount divided by the lesser of the selling price or the appraised value.

The LTV and down payment are different ways of expressing the same facts. See Down Payment/Down Payment and LTV.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
The agency last reduced the maximum LTV ratio on cash-out refis in 2009 in response to the bursting of the housing bubble.
By March-end, said the latest survey, housing finance companies were willing to take more risk as they were ready to offer an LTV ratio of 72.
Summary: Many are pushing for a higher LTV ratio, but is it the only way to drive demand?
This loan is structured with a three-year initial term and a single one-year borrower extension option, subject to the borrower meeting certain conditions, and has an as-is LTV ratio of 79%.
Additionally, the transaction has been in compliance with the Maximum LTV Ratio test.
This floating rate loan includes initial funding of approximately USD 12.7 million and an as is LTV ratio of approximately 69%.
The LTV ratio is an important risk factor used by a bank in qualifying a borrower for a collateral loan.
The LTV ratio of the REIT including this new facility stands at 39 per cent, well below the REIT's regulatory maximum LTV of 50 per cent.
Summary: However, the LTV ratio will remain the same for a person applying for a loan above Rs 20 lakh but who doesn't take the loan under the mortgage guarantee programme.
In addition, the loan to value (LTV) prole of legacy debt secured against investment assets improved; of the outstanding debt, 63% had a LTV ratio of 70% or less, compared to 53% in the previous year.
People with knowledge of the matter said NHB's efforts are aimed at increasing the LTV ratio for loans above Rs 20 lakh to 90% from 80% now.