In finance, LTV stands for Loan-to-Value ratio. It is a financial ratio that measures the relationship between the amount of a loan and the value of the asset used to secure the loan. LTV is commonly used by lenders to assess the risk of a loan and to determine whether or not to approve a loan application.
The LTV ratio is calculated by dividing the loan amount by the appraised value of the asset. For example, if a borrower is seeking a $200,000 mortgage on a home appraised at $250,000, the LTV ratio would be 80% ($200,000 divided by $250,000).
Lenders use LTV ratios to determine the level of risk associated with a loan. A higher LTV ratio indicates that the borrower has less equity in the asset and is therefore at a higher risk of default. Lenders may require higher interest rates, stricter loan terms, or additional collateral to offset this risk.