What is the loan-to-value ratio?

The loan-to-value ratio (LTV) is defined as the relationship between the amount of the loan and the appraised value or purchase price of the property, whichever is lower. This ratio is expressed as a percentage and is a critical factor used by lenders to assess the risk associated with lending. A higher LTV indicates a higher risk for the lender, as it suggests that a larger proportion of the property value is being financed. Consequently, LTV is a key metric in determining an individual's eligibility for a loan, as well as the terms and conditions, such as interest rates or private mortgage insurance (PMI) requirements.

In contrast to this, the other options presented relate to different financial concepts: one pertains to a ratio that measures a borrower's ability to manage mortgage payments in relation to their income, another describes a fee associated with originating a loan, and the last refers to the cost of borrowing money expressed as an interest rate. These are all important aspects of mortgage finance but do not define what the loan-to-value ratio is, making the first choice the accurate understanding of that specific term.