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What is loan to value?

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18th Nov 2009 by JonB

The loan to value ration or LTV is a calculation used by lenders to determine (in at least one aspect) how risky a loan is. To calculate the LTV simply divide the loan amount by the appraised value. For example a loan of $90,000 on a house worth $100,000 would be 90000/100000= 0.9 or 90%. Generally the higher the LTV, the more risky the loan because in the event of a default the lender has that much less value to count on to get their money back. Ther are no money down loans, which are of course 100% LTV. There are even loans with LTVs ABOVE 100%. The LTV of a loan is probably the single biggest factor in determining how risky a loan is, followed closely by the borrowers credit worthiness.

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17th Nov 2009 In Finance 1 Answers | 698 Views
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