The loan-to-value (LTV) ratio is commonly used by banks and building societies for assessing the percentage of the value of the property a mortgage covers. Therefore, lenders use this metric to determine the amount of risk they are undertaking while approving a loan.
Normally, the loans with higher LTV ratios are high-risk loans.
Therefore, if the mortgage is accepted, the loan charges higher interest rates for the borrower..
If the loan-to-value ratio is equal to or below 80% then the investors offer mortgage and home-equity applicants at the lowest possible interest rate.
The Loan-to-value ratio is evaluated by: –
LTV = MA / APV
APV=Appraised Property Value
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