Loan-to-Value (LTV) is a financial metric used to evaluate the level of risk given the possibility of default on a loan. The value asset is typically used as collateral for the loan, so if the value of the loan is much higher than the value of the asset, the lender is unlikely to get all their money back in the event of a default.
The calculation for LTV is simply:
- Value of Loan / Value of Asset
The LTV of home mortgages is usually between 70-80%, meaning prospective homeowners need to provide 20-30% of the value of the house themselves before being considered for a mortgage.