How is Alison's loan to value ratio calculated?

The loan-to-value (LTV) ratio is a key financial metric used to assess the risk associated with lending. It indicates the proportion of a property’s value that is financed through a loan. To calculate the LTV ratio, the process involves taking the mortgage amount and dividing it by the property value. This resulting figure is then expressed as a percentage.

In this case, the correct method is to divide the mortgage amount by the property's value. For instance, if the mortgage amount is $200,000 and the property value is $250,000, the LTV would be calculated as follows:

LTV = (Mortgage Amount / Property Value) × 100

LTV = ($200,000 / $250,000) × 100 = 80%

This percentage effectively communicates how much of the property’s value is covered by the loan, which is critical information for lenders when assessing the risk of a mortgage.

The other methods described, such as multiplying the property value by the mortgage amount or adding the two values together, do not yield a meaningful ratio pertinent to financing risk assessment. Averaging the mortgage amount and property value also fails to provide insight into the portion of the property that is financed versus owned outright. Thus, understanding the correct