1. What is Loan-to-Value Ratio?

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's commonly used in mortgage lending to assess the risk of a loan.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• \( Loan \) — The amount of money borrowed
• \( Value \) — The appraised value of the asset

Explanation: The equation calculates what percentage of the asset's value is being financed by the loan.

3. Importance of LTV Ratio

Details: Lenders use LTV to evaluate lending risk. Lower LTV ratios generally mean lower risk for lenders and may result in better loan terms for borrowers.

4. Using the Calculator

Tips: Enter the loan amount and asset value in dollars. Both values must be positive numbers. The calculator will output the LTV as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio?
A: Typically, lenders prefer LTV ratios of 80% or less for conventional loans. Higher ratios may require private mortgage insurance.

Q2: How does LTV affect interest rates?
A: Generally, lower LTV ratios qualify for better interest rates as they represent less risk to the lender.

Q3: Can LTV be more than 100%?
A: Yes, this means the loan amount exceeds the value of the asset (known as being "underwater" on a mortgage).

Q4: How is LTV different from combined LTV (CLTV)?
A: CLTV includes all loans on a property (first mortgage, second mortgage, etc.), while LTV typically refers to just the primary loan.

Q5: Does LTV apply to other loans besides mortgages?
A: Yes, LTV is also used for auto loans, business loans secured by collateral, and other asset-backed lending.