What is Loan-to-Value Ratio (LTV)?
Loan-to-Value Ratio (LTV) measures the relationship between a loan's balance and the value of the collateral securing it. Original LTV uses the appraised value at origination. Current LTV updates the denominator using home price appreciation (HPA) estimates or updated appraisals. LTV is a critical risk metric because it determines the equity cushion protecting the lender: a 75% LTV loan has a 25% equity buffer before the lender takes a loss. High LTV loans are riskier; there is less room for property value decline before the loan is "underwater" (balance exceeds value).
Formula
LTV = Loan Balance / Property Value CLTV = (All Loan Balances on Property) / Property Value
How LoanBook Uses Loan-to-Value Ratio
LoanBook calculates both original and current LTV. Current LTV uses the Current LTV enrichment module with FRED HPI (Home Price Index) data and amortization-aware balance reduction. LTV is a key input to both the Prepay Model (low LTV = more refinance ability) and the Default Model (high LTV = more default risk).
Frequently Asked Questions
What is a good LTV?
For conventional residential lending, 80% is the threshold below which mortgage insurance is not required. Below 60% is considered very low risk. Above 90% is high risk. For commercial loans, 75% is a common maximum, with 65% preferred for construction.
Related Terms
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