Legal Definitions - loan-to-value ratio

The loan-to-value ratio is a percentage that represents the amount of a mortgage loan compared to the value of the property used as collateral for the loan.

For example, if a person takes out an $80,000 mortgage loan on a property that is worth $100,000, the loan-to-value ratio would be 80%. This is typically the highest ratio that lenders will allow without requiring the borrower to purchase mortgage insurance.

The loan-to-value ratio is important because it helps lenders determine the level of risk associated with a mortgage loan. A higher ratio means that the borrower has less equity in the property and is therefore more likely to default on the loan.

Another example of a loan-to-value ratio would be if a person took out a $200,000 mortgage loan on a property that is worth $250,000. In this case, the loan-to-value ratio would be 80% as well.

Overall, the loan-to-value ratio is an important factor to consider when applying for a mortgage loan, as it can affect the interest rate, loan terms, and overall affordability of the loan.