What does "LTV ratio" stand for and measure?

The term "LTV ratio" stands for Loan-to-Value ratio. It is a financial term used in the mortgage industry to measure the ratio of a loan to the value of the property being purchased or refinanced. Specifically, it expresses the amount of the loan as a percentage of the property's appraised value or purchase price. This ratio is crucial for lenders to assess the risk associated with a mortgage.

A higher LTV ratio indicates that the borrower is financing a larger portion of the property value with debt, which can suggest greater risk to the lender. Consequently, lenders often use LTV ratios to determine the terms of the loan, including the interest rate and whether mortgage insurance will be required. Thus, understanding the LTV ratio helps both borrowers and lenders to gauge the financial dynamics involved in a real estate transaction.