Lesson 15 of 25 · 6 min

What LTV on the statement is measured against

The same loan over the same collateral produces two ratios, and only one of them is the test.

Loan-to-value is the drawn balance divided by a collateral stock. The statement prints one such ratio: LTV on market value, at close. Recover it: $1,858,563.47 ÷ $6,032,795.00 = 0.30808, printed as 30.81%. The same close over lending value is a different ratio, and that second ratio is not on the page: $1,858,563.47 ÷ $3,277,251.25 = 0.56711, or 56.71%.

LTV = drawn balance ÷ collateral stock

drawn balance: The numerator. At close, $1,858,563.47. At open, $1,847,220.00.
collateral stock: Either market value or lending value. The page's printed LTV uses market value.
LTV: A percentage. Meaningful only once the denominator is named.

The printed 30.81% is the ratio that matches this facility's maintenance basis. The threshold is 70% of market value, so the test compares 30.81% with 70%. The 56.71% figure is a true description of the same close against a different stock. It is not the test. Quoting 56.71% against a 70% market-value threshold compares two numbers that do not share a denominator.

At the open the same pair exists. $1,847,220.00 ÷ $6,032,795.00 = 30.62% on market value. $1,847,220.00 ÷ $3,277,251.25 = 56.37% on lending value. Interest of $11,343.47 lifted the market-value LTV by 0.19 points with no price movement at all, because the positions table is a 31 March mark and the numerator grew. The printed line is a close-only, market-value-only snapshot. Stating an LTV without naming the stock is how those two ratios get swapped, and the swap is a 26-point error on this page.

Key terms

LTV on market value: Drawn balance divided by total market value. Printed at close as 30.81%. The ratio this threshold is tested against.
LTV on lending value: Drawn balance divided by total lending value. At close, 56.71%. True, and not the test on this page.
Denominator basis: Which collateral stock the ratio uses. The printed LTV and the printed threshold must share one, or the comparison is empty.

Worked example

One close, two ratios

Closing drawn balance $1,858,563.47 against the two 31 March totals.

Printed LTV, market value at close: $1,858,563.47 ÷ $6,032,795.00 = 30.81%
Unprinted LTV, lending value at close: $1,858,563.47 ÷ $3,277,251.25 = 56.71%
Printed threshold: 70% of market value
Gap, printed LTV to printed threshold: 70% − 30.81% = 39.19 points
Invented comparison of 56.71% to 70%: 13.29 points
Opening LTV on market value: $1,847,220.00 ÷ $6,032,795.00 = 30.62%

The page prints the ratio that shares a basis with the threshold. The other ratio is 26 points higher and is still not the test.

Check yourself

Closing drawn balance $1,858,563.47, market value $6,032,795.00, lending value $3,277,251.25, threshold 70% of market value. What LTV does the statement print, and what mistake does quoting 56.71% against 70% make?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.