What Does LTV Mean?
When discussing mortgages, loan to value (LTV) is a term used to describe the amount of money borrowed relative to the value of the property. This ratio is expressed as a percentage and is calculated by dividing the total mortgage amount by the appraised value of the property. For example, if a home has an appraisal value of £200,000 and a mortgage balance of £180,000, its LTV ratio would be 90%.
£180,000 / £200,000 = 0.90 or 90%
Generally speaking, the lower a borrower’s LTV ratio is the more likely it is that they will qualify for a mortgage and have access to better rates. This is because the more equity (the proportion that the borrower owns) a borrower has in their home, the more security it provides the lender as it reduces their risk.
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