Loan to value (LTV) is a ratio of the total amount of a mortgage in comparison to the value of the property for which the loan will apply. 10 LTV means the loan amounts to 10 percent of the value of the property. A 10 LTV loan is often easier to secure than a loan with a higher LTV. This is because lenders accept more risk when they grant high-LTV loans. An individual is likely to have a more difficult time qualifying for an 80-percent LTV loan than he would with a 20-percent LTV loan.
To understand what a 10 LTV is, it may help to consider an example in which a person is purchasing a property with a value of $100,000 US Dollars (USD). If a borrower wanted to obtain a 10 LTV loan on a $100,000 USD property, this would mean he would apply for a $10,000 USD loan. A $10,000 USD loan would be 10 percent of the property's value. Basically, a 10 LTV occurs when a person divides the loan value by the property value or purchase price and the result is 10.
LTV calculations also reveal how much equity a person will have in a property once his purchase is final. Equity is the amount of the property a person owns versus the amount he has financed and plans to eventually own. For example, if a person purchases a property for $80,000 USD with a 10 LTV, this means he has financed $8,000 USD of the property in question. The amount of equity he has in the property, in such a case, is $72,000 USD. As the borrower makes mortgage payments, the amount of equity he has in the property will gradually increase.
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Usually, lenders are more careful about granting high-LTV loans when compared to 10 LTV or other low-LTV loans. One reason for this is the idea that a borrower with a high amount of equity in a property is less likely to default on the loan he has secured for it. In such a case, a person may be more committed to a property because he has invested quite a bit of money into owning it. Lenders may also prefer low-LTV loans because they will have an easier time recouping their money in the event of a default. Interestingly, lenders are sometimes willing to grant 100-percent loans, which means the loan equals 100 percent of the property’s value, but these loans typically come with very high interest rates.