What does the term "loan-to-value ratio" (LTV) signify?

The term "loan-to-value ratio" (LTV) signifies the relationship between the loan amount and the appraised value of the property. It is expressed as a percentage, calculated by dividing the loan amount by the appraised value of the property. This ratio is crucial in determining the risk associated with a mortgage: a higher LTV indicates higher risk for lenders because it means that a greater proportion of the property's value is being financed through the loan.

For example, if a property is appraised at $200,000 and the borrower takes out a loan of $160,000, the LTV would be 80%. Lenders use this metric to assess how much equity the borrower has in the property and to decide whether to approve the loan and under what terms. Lower LTV ratios are generally more favorable and may lead to better loan terms, such as lower interest rates.

The other options do not accurately define LTV. The total interest paid over the life of the loan pertains to the cost of borrowing but is separate from the valuation of the property. The total cost of the property including taxes and insurance encompasses expenses beyond just the mortgage loan and does not reflect the LTV. Lastly, the percentage of the down payment on a property relates