The amount of a loan expressed as a percentage of the value of the property offered as security is called what?

The amount of a loan expressed as a percentage of the value of the property offered as security is called what?

• A. Loan-to-value ratio
• B. Debt-to-income ratio
• C. Appraisal-to-loan ratio
• D. Mortgage-to-value ratio

Answer: (A)

Loan-to-value ratio measures how large the loan is compared with the property's value. It’s calculated by dividing the loan amount by the property’s appraised value (or purchase price, whichever is lower) and expressing it as a percentage. This metric helps lenders gauge risk: a higher LTV means the borrower has less equity and the loan is riskier for the lender, which can lead to tougher terms or required mortgage insurance. The other terms don’t fit this concept—the debt-to-income ratio looks at monthly income versus debts, not the property's value; appraisal-to-loan ratio and mortgage-to-value ratio aren’t the standard terms used for this measure.

Loan-to-value ratio measures how large the loan is compared with the property's value. It’s calculated by dividing the loan amount by the property’s appraised value (or purchase price, whichever is lower) and expressing it as a percentage. This metric helps lenders gauge risk: a higher LTV means the borrower has less equity and the loan is riskier for the lender, which can lead to tougher terms or required mortgage insurance. The other terms don’t fit this concept—the debt-to-income ratio looks at monthly income versus debts, not the property's value; appraisal-to-loan ratio and mortgage-to-value ratio aren’t the standard terms used for this measure.