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Finance: What is Loan To Value (LTV)? 3 Views
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What is the loan-to-value ratio? Loan us some of your time and watch this handy video.
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Transcript
- 00:00
Finance allah shmoop What is the loan to value ratio
- 00:06
or ltv All right Well this is the value of
- 00:11
your house for hundred grand This is your down payment
- 00:15
one hundred grand And this is your loan of three
- 00:20
hundred grand loan to value Yeah It's a fraction easy
Full Transcript
- 00:25
Three hundred grand over four hundred grand or three over
- 00:28
four or seventy five percent Well what does that mean
- 00:31
Like why do we even care about loan to value
- 00:34
ratio Well because they speak volumes as to how risky
- 00:37
the loan is to the bank or whoever is lending
- 00:41
the dough in this transaction Should you know things go
- 00:44
awry like you get hit by bus and you can't
- 00:46
pay it back How does a bank it's loan back
- 00:49
So you want a low loan to value ratio if
- 00:53
you're the lender because well the worst thing that happens
- 00:56
is that you repossess whatever the asset was that was
- 00:59
pledged as collateral against a loan You just sell it
- 01:02
to somebody else So what are the odds You could
- 01:03
get your money back if you're the bank who loan
- 01:06
three hundred grand against a home that just sold for
- 01:08
four hundred grand Could you drop the price tow three
- 01:11
eighty and then pay twenty thousand dollars in realtor costs
- 01:14
and all the stuff that goes with it And then
- 01:16
you're down to three sixty and maybe there's some other
- 01:18
costs and their ten grand or so you get all
- 01:21
your three hundred thousand dollars loan back and probably fifty
- 01:24
grand to boot and in theory that might go to
- 01:26
the cellar but it probably all go to the banks
- 01:28
lawyers So this equation works great with homes because over
- 01:31
time holmes generally go up in value knock down because
- 01:35
there's more people coming onto the earth again and again
- 01:38
just checked global warming if you're curious about that So
- 01:40
holmes worked great for mortgages and generally accrue lower loan
- 01:45
to value ratios over time But how does this work
- 01:48
when you take out a car loan Yeah cars are
- 01:52
essentially never an investment They're just a money pit They
- 01:55
just go down in value So you really wanted that
- 01:59
forty two two thousand dollars convertible prius with the turbo
- 02:02
charging battery which gave it a zero to sixty rating
- 02:05
of seven point eight seconds rather than the standard prius
- 02:09
Rating zero to sixty of just yes problem You put
- 02:13
ten thousand down and borrowed thirty two grand on what
- 02:15
you hoped would be a five year loan Unfortunately six
- 02:19
months after you drove off the lot the market value
- 02:21
of your turbo prius is only something like thirty thousand
- 02:25
dollars maybe less And in that time period you've only
- 02:28
paid four thousand dollars of principal down on your loan
- 02:31
So you still owe twenty eight thousand bucks on an
- 02:35
asset that today would sell form them maybe thirty and
- 02:38
after commissions transaction costs and lawyer hassle Well it'd certainly
- 02:42
be worth less than that much money toe whoever had
- 02:45
to repossess the car and then sell it that's why
- 02:48
they charge you so much interest rate on car loans
- 02:51
and only can't blame him Cars suffer this very difficult
- 02:54
loan to value equation all the time and it's part
- 02:57
of the reason that car loans air made so difficult
- 03:00
especially when you go through a dealer and why they
- 03:03
push you hard to put down a whole lot of
- 03:05
money up front So the big idea here hi l
- 03:07
tvs are bad low lt v's are good lenin doubt 00:03:11.5 --> [endTime] Go turbo
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