Loan-to-Value Ratio

The size of a loan compared with the value of the asset securing it.

Loan-to-value ratio is the loan amount divided by the appraised value of the collateral, most often a property. A lower ratio means more owner equity and less lender risk, which typically earns a better rate; a high one usually triggers mortgage insurance requirements. Falling asset prices raise the ratio without the borrower doing anything.

A larger deposit lowered the loan-to-value ratio and earned them a better mortgage rate.