Loan-to-Value (LTV) is a financial metric used to assess the risk of a loan by comparing the amount of the loan to the appraised value of the collateral securing it. Expressed as a percentage, LTV is calculated by dividing the loan amount by the collateral's value. A lower LTV indicates a smaller loan relative to the collateral's worth, reducing the lender's risk, while a higher LTV suggests greater exposure. LTV is a key factor in underwriting decisions, influencing loan terms, interest rates, and eligibility.

It is widely used in mortgage lending, asset-based financing, and other secured lending scenarios to ensure prudent risk management and alignment with regulatory requirements.

Secured policies

In Canopy, you have the ability to set the max allowed LTV via a line or loan's policies. For example, say you wanted to add secured policies around where as a lender you wanted to be notified by a breach in your max allowed LTV. In the create line of credit template, you would supply the percentage in your secured_policies

{
    "template_id": "secured_line_of_credit",
    "policies": {
       ...
        "secured_policies": {
            "max_allowed_ltv": 95.5,
						...
        }
    }
}

These policies can be applied for either a line or a loan

Another key policy is ltv_type, this takes into account how LTV is calculated. Currently Canopy supports the following types:

Value	Description
CURRENT_BALANCE_LTV	Would use current line/loan amount and most recent/current valuation
CREDIT_LIMIT_LTV	Applicable only to lines of credit, where the lender wants to be conservative and assume the line is “fully-extended” (meaning there’s no available credit left)

The above is also added during line/loan template creation