Why is the loan-to-value ratio important?
Your loan-to-value ratio (LTV) shows your equity in the property. Your equity is basically the amount of the property you own, expressed as a monetary figure. Another way of thinking of your equity is that it’s the amount of money you’d receive if you sold your property at its valued price, less what you’d have to return to your lender to repay the loan. Example: $100,000 value minus $50,000 to repay loan = $50,000 equity. Your LTV and equity are crucial because common wisdom among lenders is that the higher the LTV (and the lower the equity), the higher the risk of a borrower defaulting on his or her loan. Thus, low equity loans present lenders with greater risk, forcing them to increase their costs.
Your loan-to-value (LTV) shows your equity in the property. Your equity is basically the amount of the property you own, expressed as a monetary figure. Another way of thinking of your equity is that it’s the amount of money you’d receive if you sold your property at its valued price, less what you’d have to return to your lender to repay the loan. Example: $100,000 value minus $50,000 to repay loan = $50,000 equity. Your LTV and equity are crucial because common wisdom among lenders is that the higher the LTV (and the lower the equity), the higher the risk of a borrower defaulting on his or her loan. Thus, low equity loans present lenders with greater risk, forcing them to increase their costs.
Your loan-to-value ratio (LTV) shows your equity in the property. Your equity is basically the amount of the property you own, expressed as a monetary figure. Another way of thinking of your equity is that it’s the amount of money you’d receive if you sold your property at its valued price, less what you’d have to return to your lender to repay the loan. Example: $100,000 value minus $50,000 to repay loan = $50,000 equity. Your LTV and equity are crucial because common wisdom among lenders is that the higher the LTV (and the lower the equity), the higher the risk of a borrower defaulting on his or her loan. Thus, low equity loans present lenders with greater risk, forcing them to increase their costs.
