What does the term 'LTV' stand for in mortgage financing?

The term 'LTV' stands for Loan to Value in mortgage financing. This financial metric is crucial in determining the risk associated with lending. It represents the ratio of the mortgage amount to the appraised value of the property being purchased. For instance, if a property is valued at $200,000 and the loan amount is $180,000, the LTV ratio would be 90%.

LTV is significant because it helps lenders assess the risk of a mortgage. A higher LTV indicates a higher risk for the lender, as it suggests the borrower has less equity in the property. This can affect the terms of the loan, such as interest rates or the requirement for private mortgage insurance (PMI). Understanding LTV is essential for both borrowers and lenders in evaluating the conditions of the mortgage.