Definition of Loan To Value (LTV)

Loan to Value (LTV) is a measure of the ratio between the amount of the loan and the value of the asset financed. It is calculated by dividing the amount of the loan by the market value of the asset , and expressed as a percentage.
For example, an LTV of 80% means that a lender offers 80% of the amount to buy an asset, and the merchant 20% of the price to cover the risks.

LTV is important to lenders as it provides a method of measuring risk. The higher the LTV, the more the lender is exposed to the risk of defaulting on the loan. In addition, the interest rate the lender charges can be influenced by LTV; the higher it is, the higher the interest rates will be.

LTV is also important for private equity investors, as it determines the amount of their return on investment. The lower the LTV, the higher the return on investment, as there is less risk for the lender.

LTV is considered an important means of assessing return on investment and is used by lenders and investors to make investment decisions.