In mortgage lending, what does LTV stand for?

LTV stands for Loan to Value, which is a critical metric in mortgage lending. It measures the ratio of a loan to the value of the property being purchased. This ratio helps lenders assess risk; a lower LTV ratio indicates that the borrower has a greater equity stake in the property, which typically makes them less of a risk. Conversely, a higher LTV ratio can indicate higher risk for the lender because it may mean the borrower has less equity and, as a result, is more likely to default on the loan.

Understanding LTV is important as it influences various aspects of the mortgage process, including interest rates, the requirement for private mortgage insurance (PMI), and ultimately the borrower’s eligibility for mortgage financing. It’s a key component for both lenders and borrowers in making informed decisions related to real estate transactions.