A borrower has a mortgage balance of $300,000 on a property valued at $400,000. What is their current Loan-to-Value ratio?
Correct Answer
C) 75%
The Loan-to-Value (LTV) ratio is calculated by dividing the mortgage balance by the property value: $300,000 ÷ $400,000 = 0.75 or 75%. This ratio is crucial for determining refinancing options and whether mortgage insurance is required.
Why This Is the Correct Answer
Option C (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.
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