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Loan to Value (LTV)

I’d like to talk about one of my favorite joys of running this company. It’s education my clients. I decided to blog weekly on the questions I receive the most. One of the most common questions is for me to define Loan to Value or (LTV). Many have heard the term, just need a little more information. If you ever have any financial questions, just give us a call. The LTV ratio is calculated as the amount of the mortgage lien divided by the appraised value of the property, expressed as a percentage. For example, a borrower taking on a $92,500 mortgage to purchase a home appraised at $100,000 would have an LTV ratio of 92.50% (92,500/100,000). The loan-to-value ratio is a critical component of mortgage underwriting, whether it be for the purpose of purchasing a residential property, refinancing a current mortgage into a new loan, or borrowing against accumulated equity within a property. All lenders assess the LTV ratio in an effort to determine the level of exposed risk they take on when underwriting a mortgage, calculated as the delta between the property’s appraised value and the total amount borrowed. When borrowers request a loan for an amount that is at or near the appraised value, and therefore a higher loan-to-value ratio, lenders perceive that there is a greater chance of the loan going into default because there is little to no equity built up within the property. Should foreclosure take place, the lender may find it difficult to sell the home for an amount sufficient to cover the outstanding mortgage balance and make a profit from the...