Loan to Value Ratio (LTV)

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FLORIDA REAL ESTATE SALES ASSOCIATE COURSE

Types of mortgages

Section 12 of 72

The Loan to Value ratio (LTV) is the key metric used to assess the risk of the loan regarding the collateral. It is calculated by dividing the loan amount by the value of the property (using the lower of the purchase price or the appraised value). For conventional loans, the LTV dictates not only the interest rate but also the cost of PMI. A higher LTV implies a riskier loan, often resulting in higher costs for the borrower, whereas a lower LTV often secures the most favorable terms.