Exploring Careers – Finance Practice Test

LTV stands for Loan-To-Value ratio, and it tells you how much of the property's value is being financed with a loan. It compares the loan amount to the appraised value (or purchase price) of the asset, usually shown as a percentage. This helps lenders gauge risk: a higher LTV means a larger loan relative to value, leaving less equity and making default more serious for the lender, which can lead to higher interest rates or the need for mortgage insurance. The other terms don’t reflect this relationship between loan size and asset value, since they use different concepts (liability, lease, or volume) that aren’t standard measures of financing relative to asset value. For example, if you borrow $300,000 on a home valued at $375,000, the LTV is 80%.