What is defined as the ratio of a loan to the value of an asset purchased?

The Loan-to-Value Ratio (LTV) is a financial term that describes the ratio of a loan amount to the appraised value or purchase price of an asset, usually real estate. In the context of mortgages, the LTV ratio is calculated to determine how much of the asset is financed through debt versus how much is provided by the down payment from the borrower. A higher LTV indicates that a larger portion of the asset's value is financed through a loan, which can signal higher risk to lenders because it suggests that the borrower has less equity in the property.

This ratio is a critical factor in the underwriting process of mortgage loans and can influence interest rates and the terms of the loan. Generally, lenders prefer lower LTV ratios because they imply a lower risk of default, as the borrower has more skin in the game.

In contrast, the other concepts mentioned, such as Cash Flow Ratio, Debt Service Ratio, and Gross Debt Service Ratio, pertain to other aspects of a borrower's financial health and their ability to manage debt but do not specifically define the relationship between loan amounts and asset values.