Close this search box.

Table of Contents

Loan-to-Value (LTV)


Loan-to-Value (LTV) is a financial term that lenders use to measure the ratio of a loan to the value of an asset purchased. It’s calculated by dividing the amount of the loan by the value of the asset. The LTV ratio helps lenders assess risk before approving a loan— a higher LTV ratio indicates higher risk.


The phonetics of the keyword “Loan-to-Value” (LTV) would be:Loan – /loʊn/to – /tuː/Value – /ˈvæl.juː/LTV – /ˌelˌtiːˈviː/This phonetic transcription follows the International Phonetic Alphabet (IPA).

Key Takeaways

Sure, here are your takeaways in HTML format.“`html

  1. Definition: Loan-to-Value (LTV) is a financial term used by lenders to express the ratio of a loan to the value of the asset purchased. This ratio is important to lenders because it helps determine the level of risk associated with the loan.
  2. Importance: A higher LTV ratio means higher risk because it signifies a borrower has invested less equity/reality in the purchased property. That could lead to a higher interest rate or potentially a denial of the loan. On the other hand, a lower LTV generally means better terms for the loan.
  3. Calculation: You can calculate LTV by dividing the mortgage amount by the appraised value of the property. It is usually expressed as a percentage. For example, if you’re buying a $200,000 home and taking out a $150,000 loan, your LTV would be 75%.



The Loan-to-Value (LTV) ratio is a crucial concept in finance and real estate, playing a significant role in determining the interest rates on loans and the potential for loan approval. It is a measure that compares the amount of the loan to the value of the asset bought with the loan. A lower LTV represents a lower risk to the lender because more of the asset is owned outright. A higher LTV, on the other hand, represents a higher risk because the borrower owes more than the value of the asset. The LTV ratio also influences the need for Private Mortgage Insurance (PMI). A LTV of more than 80% often requires PMI which would add to the cost of the loan. Therefore, understanding the LTV ratio helps in making informed decisions on borrowing and mortgage arrangements.


Loan-to-Value (LTV) is a key risk assessment tool used by lenders to evaluate how risky a loan might be. Essentially, the LTV ratio seeks to show the amount a person is borrowing in relation to the appraised value of the property in question. The purpose of LTV is to provide a quantitative measure of the risk involved in providing a loan. Higher LTV ratios are generally seen as higher risk, as they imply that a borrower is borrowing a larger amount relative to the property’s value. This ratio is one of the main factors lenders consider when determining whether to approve a loan, as well as in setting the terms and conditions of the loan, such as the interest rate.LTV is often used in scenarios such as home mortgages and auto loans. The principle behind LTV is that it represents the potential loss a lender would face if the loan goes into default since, in such cases, the lender may have to seize and sell the collateral (the property) to recoup their costs. Therefore, if a loan has a high LTV ratio, it means the sale of the collateral might not cover the outstanding loan balance if prices drop or if the condition of the property deteriorates. In contrast, a lower LTV ratio implies the lender would have a greater chance of recovering the full amount of the loan if the borrower defaults.


1. Buying a House: For a real estate purchase, Loan-to-Value (LTV) ratio is a key metric used by lenders to assess risk. Let’s say a home buyer wants to purchase a house valued at $300,000 and is applying for a mortgage loan of $240,000. Using an LTV calculation, the LTV ratio is 80% ($240,000 loan amount divided by the $300,000 property value), which is typically acceptable to many lenders. In this case, a lower LTV ratio means a lower risk to the lender. 2. Auto Loan: Similarly, for an auto loan, an individual might buy a car worth $20,000 and pay a down-payment of $5,000, borrowing only $15,000. The LTV ratio for this scenario would then be 75% ($15000/$20000).3. Home Refinancing: Another example can be seen in home refinancing situations. Suppose a homeowner’s property is currently worth $200,000 and they have an outstanding mortgage balance of $150,000. A lender may allow them to refinance their home with an 80% LTV. Therefore, they will be eligible for a new mortgage up to $160,000. However, they will need to pay off the $150,000 current balance, which leaves an additional $10,000 available for the homeowner to use.

Frequently Asked Questions(FAQ)

What does Loan-to-Value (LTV) mean?

Loan-to-Value (LTV) is a financial term used in lending that compares the amount of a loan to the value of the asset that the loan is secured against, often expressed as a percentage.

How is the LTV ratio calculated?

The LTV is calculated by dividing the loan amount by the appraised value of the property. For example, if you borrowed $75,000 to buy a property worth $100,000, your LTV would be 75%.

What is the significance of the LTV ratio in finance?

The LTV ratio is used by lenders to assess the risk associated with granting a loan. A higher LTV ratio means greater risk to the lender since it suggests the borrower has less invested in the property.

Can LTV affect my loan approval?

Yes. A lower LTV ratio often increases the chances of loan approval because it represents a lower risk to the lender, whereas a higher LTV may make it harder to get loans approved.

How does LTV affect mitigating losses?

In the event of a loan default, a lower LTV ratio could limit the lender’s losses as the property could be sold to cover most, if not all, of the outstanding loan.

How can I lower my LTV ratio?

You can lower your LTV ratio by either reducing the amount you wish to borrow or increasing the down payment on the purchase of the property.

How do lenders determine the value of the property for calculating LTV?

Lenders usually use a professional appraiser to get an accurate, unbiased measure of the property’s value to calculate the LTV.

Is it possible to have an LTV of more than 100%?

Yes, it’s possible but not common. An LTV greater than 100% is often referred to as negative equity and typically occurs when property values decrease after purchase.

Is a lower LTV ratio always better?

Generally, yes. A lower LTV ratio exposes the lender to lower risk. However, individual circumstances can vary and there might be situations where a higher LTV is more beneficial.

Related Finance Terms

Sources for More Information

About Our Editorial Process

At Due, we are dedicated to providing simple money and retirement advice that can make a big impact in your life. Our team closely follows market shifts and deeply understands how to build REAL wealth. All of our articles undergo thorough editing and review by financial experts, ensuring you get reliable and credible money advice.

We partner with leading publications, such as Nasdaq, The Globe and Mail, Entrepreneur, and more, to provide insights on retirement, current markets, and more.

We also host a financial glossary of over 7000 money/investing terms to help you learn more about how to take control of your finances.

View our editorial process

About Our Journalists

Our journalists are not just trusted, certified financial advisers. They are experienced and leading influencers in the financial realm, trusted by millions to provide advice about money. We handpick the best of the best, so you get advice from real experts. Our goal is to educate and inform, NOT to be a ‘stock-picker’ or ‘market-caller.’ 

Why listen to what we have to say?

While Due does not know how to predict the market in the short-term, our team of experts DOES know how you can make smart financial decisions to plan for retirement in the long-term.

View our expert review board

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More