1. What is Loan-to-Value (LTV) 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 a key risk assessment metric in lending, especially for mortgages and auto loans.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• Loan Amount — The amount borrowed (in currency)
• Asset Value — The appraised value of the property/asset (in currency)

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

3. Importance of LTV Calculation

Details: LTV ratio helps lenders determine the risk of the loan. Lower LTV ratios generally mean less risk for the lender and may result in better loan terms for the borrower.

4. Using the Calculator

Tips: Enter the loan amount and asset value in the same currency. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio?
A: Typically, an LTV of 80% or lower is considered good. Some lenders may require mortgage insurance for LTVs above 80%.

Q2: How does LTV affect my loan terms?
A: Lower LTV ratios often qualify for lower interest rates and better terms as they represent less risk to the lender.

Q3: Can LTV be more than 100%?
A: Yes, this means you owe more than the asset is worth (called being "underwater" or "upside-down" on a loan).

Q4: How can I lower my LTV ratio?
A: You can lower your LTV by making a larger down payment, paying down the principal, or if the asset value increases.

Q5: Is LTV calculated on purchase price or appraised value?
A: For mortgages, it's typically the lower of the purchase price or appraised value. For refinancing, it's based on appraised value.