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How to Calculate Loan to Value Ratio.
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How to Calculate Loan to Value Ratio.

Rosemary Njeri

The loan-to-value ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

A lender can use the loan-to-value (LTV) ratio to assess risk before approving a loan to a borrower.

A higher LTV ratio suggests more risk.

Formula to calculate LTV.

Calculate Loan to Value Ratio.

An appraised value is an evaluation of a property’s value based on a given point in time.

Example:

Steve is applying for a mortgage from a bank to buy a new house. He needs to borrow $400,000. An appraiser’s determined that the current value of the house that Steve wants to purchase is $600,000. Calculate the LTV.

Calculate Loan to Value Ratio.

Therefore, the LTV ratio is 67%.

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