Legal Definitions - loan ratio

Definition: Loan ratio, also known as loan-to-value ratio (LTV ratio), is the percentage ratio between the amount of a mortgage loan and the value of the property used as collateral for the loan.

Example: If a person takes out a mortgage loan of $80,000 on a property worth $100,000, the loan-to-value ratio would be 80%. This means that the loan amount is 80% of the property's value. Lenders usually set a maximum LTV ratio that they are willing to lend without requiring the borrower to purchase mortgage insurance.

Explanation: The loan ratio or LTV ratio is an important factor that lenders consider when approving a mortgage loan. It helps them determine the risk associated with the loan and the amount of collateral they have in case the borrower defaults on the loan. A higher loan ratio means a higher risk for the lender, which is why they usually set a maximum LTV ratio. The example illustrates how the loan ratio is calculated and how it affects the borrower's ability to get a loan without additional costs.