A borrower has a mortgage balance of $300,000 on a property valued at $400,000. What is their current Loan-to-Value ratio?

Q: What is the correct answer to: A borrower has a mortgage balance of $300,000 on a property valued at $400,000. What is their current Loan-to-Value ratio?

The correct answer is 75%. Option B (75%) is correct because the LTV ratio is calculated by dividing the outstanding mortgage balance by the current property value: $300,000 ÷ $400,000 = 0.75 or 75%. This straightforward mathematical calculation follows standard industry practice and regulatory definitions used by Canadian financial institutions. The 75% LTV indicates the borrower has 25% equity in the property, which is below the 80% threshold requiring mortgage default insurance under federal regulations.

Q: What background knowledge is needed for this Mortgage & Real Estate Finance question?

Loan-to-Value (LTV) ratio is calculated as outstanding mortgage balance divided by current property value, expressed as a percentage. In Canada, LTV ratios above 80% require mortgage default insurance under federal regulations. The ratio affects interest rates, lending terms, and qualification requirements. Canadian lenders use LTV ratios for risk assessment and regulatory compliance under Office of the Superintendent of Financial Institutions (OSFI) guidelines. Real estate professionals must understand LTV calculations for client counseling, transaction feasibility analysis, and refinancing discussions.

Q: What is a good way to remember the answer to this Mortgage & Real Estate Finance question?

Remember 'Loan over Value' - always divide the LOAN amount by the property VALUE. Think of it as 'How much of my house does the bank own?' If I owe $300K on a $400K house, the bank owns 3/4 or 75% of my house's value. When you see LTV questions, immediately identify the loan balance (numerator) and property value (denominator). Set up the division: Loan ÷ Value = LTV percentage. Double-check by ensuring the result makes logical sense.

Q: What exam tip applies to this Mortgage & Real Estate Finance question?

Always divide mortgage balance by property value for LTV. Write the formula 'LTV = Loan ÷ Value' at the top of your scratch paper. Convert the decimal to percentage by multiplying by 100.

Q: How does this Mortgage & Real Estate Finance concept apply in real world practice?

A client wants to refinance their home to access equity for renovations. Their current mortgage balance is $300,000 on a property now worth $400,000. With a 75% LTV, they have $100,000 in equity. Since they're below the 80% threshold, they can potentially refinance up to 80% ($320,000) without requiring mortgage insurance, accessing $20,000 in additional funds while maintaining favorable lending terms.

Question

Mortgage & Real Estate FinanceLtv_calculationsMEDIUM

A borrower has a mortgage balance of $300,000 on a property valued at $400,000. What is their current Loan-to-Value ratio?

Answer Options

A

67%

B

75%

C

80%

D

85%