Loan-to-value Ratio

What is the loan-to-value ratio?

The loan-to-value ratio is used by mortgage providers to assess the risk associated with lending a mortgage. It's used to establish how much more it will cost a high-risk borrower to have a mortgage.

Where have you heard about the loan-to-value ratio?

If you've got a mortgage, you might be familiar with the loan-to-value ratio. It's used before a loan provider approves any mortgage to make sure they know what kind of rate to offer.

What you need to know about the loan-to-value ratio...

The loan-to-value ratio is worked out by dividing the required mortgage amount by the appraised value of the property. The higher the ratio, the higher risk the borrower is deemed to be – and the more they'll have to pay to have a mortgage. An 'average' LTV ratio can be anything up to about 80%: after that, rates might rise by a percent or so.

Unusually high LTV ratios can result in the borrower having to get mortgage insurance to reduce the risk to the lender. The biggest risk that comes from borrowing high amounts of money is that the borrower is more likely to default on their loan.