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Loan-to-value ratio


The loan-to-value ratio (LTV) determines the maximum amount of a secured loan based on the market value and the liquidity of the asset pledged as collateral. (For a secured loan, the borrower gives the lender claim to an asset in case he or she can’t pay back the loan.)

The market value of an asset is the typical price that would be paid for it on the open market. When an asset is relatively easy to convert to cash (is highly liquid), the lender is more likely to consider a higher maximum amount for the loan.

More about loan-to-value ratios

The chart below shows the loan-to-value ratios of various assets based on their market value and their liquidity. In each case, the assets have a market value of $100,000, so their liquidity affects the loan-to-value ratio.