The Loan-to-Value (LTV) ratio is a crucial metric in mortgage lending, representing the relationship between the loan amount and the property’s appraised value. Calculated by dividing the loan amount by the property’s value, LTV helps lenders assess the risk of a loan. For example, a $90,000 loan on a $100,000 property results in a 90% LTV ratio. Higher LTV ratios, which indicate less borrower equity and greater lender risk, often lead to higher interest rates and may require the purchase of Private Mortgage Insurance (PMI) to protect the lender in case of default. Lenders typically prefer an LTV of 80% or lower to offer favorable rates, while special programs may allow higher ratios with additional conditions such as mandatory PMI.