The loan-to-value (LTV) ratio is a ‘financial term’ used by lenders to express the ratio of a loan to the value of an asset purchased. It is a number that describes the size of a loan compared to the value of the property securing the loan. While taking a loan, this value plays an important role as it determines one’s eligibility for loan approval.
The loan to value (LTV) ratio is calculated by dividing the loan amount by the total value of the asset securing the loan. It is usually expressed in percentage terms. A higher LTV ratio means more risk because the assets behind the loan are less likely to pay off the loan as the LTV ratio increases.