Real estate and construction
Loan-to-value (LTV)
A loan as a share of the value of the property securing it.
Last reviewedWhat does Loan-to-value (LTV) mean?
Loan-to-value is the size of a loan divided by the value of the asset it is secured on, usually property. Lenders cap it to keep a cushion if prices fall, and many loans have a covenant (a condition) that the LTV must stay below a set level. Example: a 70 million loan on a 100 million building is an LTV of 70 percent. If the building's value falls 20 percent to 80 million, the LTV rises to 87.5 percent, which may breach a 75 percent covenant and force the owner to repay part of the loan or put in more equity. The same idea is used for home loans.
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Related terms
- Cap rate (capitalization rate)A property's net operating income divided by its value: its yield at today's price.
- REIT (real estate investment trust)A company that owns income-producing property and pays out most of its income to investors.
- LBO (leveraged buyout)Buying a company mostly with borrowed money.
- NOI (net operating income)A property's income after operating costs, before debt payments, depreciation and income tax.
- EPC contract (engineering, procurement and construction)A contract where one contractor designs, buys and builds a project and hands it over ready to run.
- Critical pathThe longest chain of dependent tasks in a project, which sets how fast it can finish.