Warning
Info
Warning
Info
Simple English definitions for legal terms
loan ratio
Read a random definition: Aquilian law
A quick definition of loan ratio:
A loan ratio, also known as a loan-to-value ratio, is a comparison between the amount of money borrowed for a mortgage and the value of the property being used as collateral. This ratio is usually expressed as a percentage and helps lenders determine the risk of lending money. For example, if someone borrows $80,000 for a property worth $100,000, the loan-to-value ratio would be 80%. Lenders typically prefer lower ratios, and anything above 80% may require the borrower to purchase mortgage insurance.
A more thorough explanation:
Definition: Loan ratio, also known as loan-to-value ratio (LTV ratio), is the percentage ratio between the amount of a mortgage loan and the value of the property used as collateral for the loan.
Example: If a person takes out a mortgage loan of $80,000 on a property worth $100,000, the loan-to-value ratio would be 80%. This means that the loan amount is 80% of the property's value. Lenders usually set a maximum LTV ratio that they are willing to lend without requiring the borrower to purchase mortgage insurance.
Explanation: The loan ratio or LTV ratio is an important factor that lenders consider when approving a mortgage loan. It helps them determine the risk associated with the loan and the amount of collateral they have in case the borrower defaults on the loan. A higher loan ratio means a higher risk for the lender, which is why they usually set a maximum LTV ratio. The example illustrates how the loan ratio is calculated and how it affects the borrower's ability to get a loan without additional costs.