How is the Loan-to-Value (LTV) ratio expressed?

The Loan-to-Value (LTV) ratio is a critical financial metric used primarily in real estate financing, reflecting the relationship between the amount of a loan and the appraised value of the property being financed. This ratio is expressed as the loan amount divided by the asset's value.

In practice, the LTV helps lenders assess the risk associated with a loan. A higher LTV ratio suggests greater risk because it indicates that the borrower is financing a larger portion of the property's value. Conversely, a lower LTV ratio implies that the borrower is investing more equity into the property, which could signal a more stable financial situation and lower risk for the lender.

Understanding LTV is crucial for both lenders and borrowers, as it influences loan approval decisions, interest rates, and mortgage insurance requirements. Thus, the tie between the loan amount and the asset's value is central to understanding how LTV functions in the context of real estate financing.