Question

The amount of the mortgage is divided by the value of the property to provide a ratio, which would be expressed as a percentage. The higher the percentage, the more risk the lender has because the loan amount is high in relation to the amount of equity the borrower has in the property.

A. Loan-to-Value (LTV) ratio.
B. Debt-to-Income (DTI) ratio.
C. Gross Debt Service (GDS) ratio.
D. Amortization ratio.

Answer 1

The ratio obtained by dividing the mortgage amount by the property's value is the Loan-to-Value (LTV) ratio, representing the risk level to the lender.

Step-by-step explanation:

The ratio in question that is derived by dividing the amount of the mortgage by the value of the property is known as the Loan-to-Value (LTV) ratio. This ratio is expressed as a percentage, and it highlights the relationship between the loan amount and the equity the borrower has in the property. A higher LTV ratio indicates a higher risk for the lender as it means the loan amount is higher relative to the borrower's equity. This is a crucial metric used by banks to assess the riskiness of a mortgage loan. In the context of the primary and secondary loan markets, the LTV ratio can affect how much banks and financial institutions are willing to pay for a mortgage loan in the secondary market. Financial institutions may pay less for a loan with a high LTV ratio, due to the increased risk of borrower default.