Loan to value: Difference between revisions
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Loan To Value is the ratio of the amount of a mortgage loan to the value of the residential property, or other asset, on which it is secured. | Loan To Value is the ratio of the amount of a mortgage loan to the value of the residential property, or other asset, on which it is secured. | ||
:<span style="color:#4B0082">'''Example 1'''</span> | |||
:A property is valued at £400,000. | |||
:The outstanding amount of a loan secured on it is £300,000. | |||
:The loan to value ratio is 300,000 / 400,000 | |||
:= 75% | |||
The lower the LTV, the lower the risk for the lender. | The lower the LTV, the lower the risk for the lender. | ||
:<span style="color:#4B0082">'''Example 2'''</span> | |||
:Another property is also valued at £400,000. | |||
:The outstanding amount of a loan secured on it is £200,000. | |||
:The loan to value ratio is 200,000 / 400,000 | |||
:= 50% | |||
All other things being equal, the loan in Example 2 carries lower risk for the lender. | |||
== See also == | == See also == | ||
* [[Covenant]] | |||
* [[Foreclosure]] | * [[Foreclosure]] | ||
* [[Mortgage]] | * [[Mortgage]] | ||
* [[Mortgage-backed securities]] (MBS) | |||
* [[Risk]] | |||
* [[Security]] | * [[Security]] | ||
[[Category:The_business_context]] | |||
[[Category:Corporate_finance]] | |||
[[Category:Investment]] | |||
[[Category:Long_term_funding]] | |||
[[Category:Identify_and_assess_risks]] | |||
[[Category:Manage_risks]] | |||
[[Category:Risk_reporting]] | |||
[[Category:Financial_products_and_markets]] | |||
Latest revision as of 11:46, 26 June 2022
Banking.
(LTV).
Loan To Value is the ratio of the amount of a mortgage loan to the value of the residential property, or other asset, on which it is secured.
- Example 1
- A property is valued at £400,000.
- The outstanding amount of a loan secured on it is £300,000.
- The loan to value ratio is 300,000 / 400,000
- = 75%
The lower the LTV, the lower the risk for the lender.
- Example 2
- Another property is also valued at £400,000.
- The outstanding amount of a loan secured on it is £200,000.
- The loan to value ratio is 200,000 / 400,000
- = 50%
All other things being equal, the loan in Example 2 carries lower risk for the lender.
