What is a loan-to-value ratio (LTV)?

The loan-to-value ratio expresses the relationship between a loan amount and the appraised value of the asset securing it, calculated as a percentage. For example, a loan of 80,000 dollars on a property appraised at 100,000 dollars equals an 80 percent LTV. This metric directly influences a lender's risk assessment and the terms they offer.

In mortgage lending, LTV is central to underwriting decisions. Lenders typically cap LTV at 80 percent for conventional loans, though some allow higher ratios up to 95 or 97 percent when borrowers carry mortgage insurance. Lower LTV ratios mean the lender has greater equity cushion if the property must be sold at a loss. For title loans in the Southern and Central United States, lenders often work with lower LTV limits, sometimes ranging from 25 to 50 percent of the vehicle's market value, reflecting the faster depreciation and resale risk of vehicles compared to real estate.

Borrowers with higher LTV ratios typically face higher interest rates and stricter credit requirements because the lender assumes greater risk. A lower ratio improves approval odds and can secure more favorable rates. LTV remains a foundational tool loan agencies use to balance portfolio risk while determining how much capital they can deploy across their customer base.