What does “LTV” stand for in the mortgage lending world?

In the mortgage lending world, "LTV" stands for Loan-to-Value ratio. This important metric is used by lenders to assess the risk associated with a mortgage loan. The LTV ratio is calculated by dividing the amount of the loan by the appraised value of the property, expressed as a percentage. For example, if a borrower takes out a $200,000 loan on a property appraised at $250,000, the LTV ratio would be 80% ($200,000 / $250,000).

A lower LTV ratio typically indicates a lower risk for lenders, as it suggests that the borrower has more equity in the property. Conversely, a higher LTV ratio may suggest a higher risk for the lender, which can influence the borrowing terms, such as interest rates and mortgage insurance requirements. Understanding LTV is essential for both borrowers and lenders, as it plays a critical role in the lending process and evaluates financial stability.