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 ?
Group 2 Pool: 5,854 loans with an aggregate unpaid principal balance of $878,017,169; average loan size $149,986; weighted average note rate 4.51%; weighted BPO loan-to-value ratio of 76%.
We remain committed to our strategy of focusing on C&I loans, multi-family and commercial real estate loans as in the third quarter, originations and purchases represented 43%, 33%, and 12%, respectively, of all originations, which were made while maintaining conservative loan-to-value and debt coverage ratios, and increasing yield.
Fountainhead Commercial Capital, a nonbank lender specializing in the SBA 504 loan program and low loan-to-value conventional loans, was founded by some of the most experienced and awarded SBA lenders around.
Mortgage company South Pacific Financial Corporation (SPFC) announced on Monday that it will offer the new Fannie Mae conventional 97% loan-to-value (LTV) programme.
After the traumatic experience of the crash, when high leverage left lenders exposed as borrowers defaulted in large numbers, banks have generally lowered loan-to-value ratios--the percentage of a project's total value that is financed with a loan.
Osborne said the BoE should not hesitate to act if needed, and noted that loan-to-income ratios were at a new high, although loan-to-value ratios were well below their peak.
Most countries adopting such restrictions prohibit high loan-to-value lending.
"The loan-to-value [LTV] levels proposed are sensible and are at a level that we believe banks and investors in the region will welcome," Richard Paul, director at Cluttons, the property services firm, said.
However, the central bank is now likely to call for a specific increase in the fees banks will have to pay if they want to lend out a 90-95% loan-to-value mortgage, according to Sky News.
The return of higher loan-to-value mortgages has stimulated this, with many more first-time buyers getting onto the property ladder with smaller deposits of between 5% and 10% than at any time over the preceding year.
They also plan to speak with the central bank on raising the new loan-to-value lending limits required for both citizens and foreigners, they said, asking not to be identified because the discussions are private.