LTV ratio is computed as?

• A. LTV = Appraised Value / Loan Amount
• B. LTV = Loan Amount / Appraised Value
• C. LTV = (Loan Amount + Appraised Value) / 2
• D. LTV = Interest Rate / Appraised Value

Answer: (B)

LTV ratio measures how much of the property's value is being financed. It is calculated by dividing the loan amount by the appraised value of the property. For example, borrowing $300,000 on a property appraised at $350,000 gives an LTV of 300,000 / 350,000 ≈ 0.857 (85.7%). This directly expresses the loan size relative to the asset’s value, which is what lenders care about when assessing risk. The other forms don’t fit: inverting the ratio would misstate the relationship between loan and value, averaging the two values isn’t how financing is measured, and using the interest rate in the numerator has no connection to how much of the value is financed.