This is a metric used to assess the level of risk involved in extending a loan to a borrower by comparing the value of the loan against the value of the underlying collateral. The loan to value (LTV) ratio is calculated by dividing the loan amount by the estimated market value of the collateral. It is usually expressed in percentage terms, and shows the amount of money that can be salvaged from a borrower in case of a default. Since the actual market value of the collateral is likely to fluctuate over time, loans with lower LTV ratio are considered safer as the lender is protected from larger fluctuations in collateral value.
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