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What does loan-to-value ratio mean, and how is it determined?

What does loan-to-value ratio mean, and how is it determined?

The loan-to-value (LTV) represents the value of a property that a bank uses as the basis for granting a loan or credit. This value is generally lower than the actual market value or fair market value of the property. The determination of the LTV is carried out either by the bank itself or by an independent, certified appraiser. The primary purpose of establishing the loan-to-value is to minimize the potential risk the bank assumes in the event of payment defaults or a possible decrease in the property’s value. It is a critical factor for both the bank and the borrower during the loan approval process.

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