Loan-to-value ratio (LTV) is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased, commonly used in real estate transactions by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. The LTV ratio is a measure comparing the amount of your mortgage with the appraised value of the property. It is a critical component of mortgage underwriting and may be used in the process of buying a home, refinancing a current mortgage into a new loan, or borrowing against accumulated equity within a property. The higher the LTV ratio, the riskier the loan is for a lender. Higher LTV ratios are primarily reserved for borrowers with higher credit scores and a satisfactory mortgage history. Full financing, or 100% LTV, is reserved for only the most credit-worthy borrowers. The loans with LTV ratios higher than 100% are called underwater mortgages.

LTV is important because lenders can only approve loans up to certain ratios, and if your LTV is too high, your loan may not be approved. Or, you may have to purchase mortgage insurance, which protects your lender in case you default on the loan and the lender has to foreclose. A 70% (0.70) loan-to-value (LTV) ratio indicates that the amount borrowed is equal to seventy percent of the value of the asset. In the case of a mortgage, it would mean that the borrower has come up with a 30% down payment and is financing the rest.

LTV is only one factor in determining eligibility for securing a mortgage, a home equity loan, or a line of credit. However, it can play a substantial role in the interest rate that a borrower is able to secure. Most lenders offer mortgage and home-equity applicants the lowest possible interest rate when their LTV ratio is at or below 80% .

While a loan-to-value ratio measures the amount borrowed against a house relative to the value of a house, combined LTV measures the total amount borrowed—across multiple loans—against the value of a house. This is important because, while many lenders only include primary mortgages in their LTV calculations, combined LTV includes the total amount of all secured loans on a property.