What does LTV stand for in mortgage lending?

In mortgage lending, LTV stands for Loan-to-Value ratio. This ratio is a critical financial metric that lenders use to assess the risk associated with a mortgage loan. It is calculated by taking the amount of the loan and dividing it by the appraised value of the property being financed. The resulting percentage helps lenders determine how much equity the borrower has in the home, which in turn influences the terms of the loan, including interest rates and potential mortgage insurance requirements.

A higher LTV ratio may indicate a higher risk for the lender, as it suggests that a greater proportion of the property's value is being financed rather than owned outright by the borrower. Conversely, a lower LTV indicates that the borrower has more equity in the property and is generally viewed as a lower-risk applicant. Understanding LTV is essential for both borrowers and mortgage professionals, as it affects loan eligibility and the overall cost of borrowing.