In order to better understand a borrower's probability of default, lenders have a number of tools at their disposal. The ratio that measures the percentage of the price (or value) of a property that is encumbered by the first mortgage is referred to as the:

Question

Quizplus · Accepted Answer

The loan-to-value ratio (LTV) measures the amount of the loan compared to the value of the property. It is a key factor in determining the risk of default because a higher LTV indicates a greater risk of loss for the lender in the event of foreclosure. The other ratios listed (debt coverage ratio, break-even ratio, and price-earnings ratio) are not directly related to measuring the probability of default.

In Order to Better Understand a Borrower's Probability of Default