What does the term "loan to value ratio" (LTV) measure?

The term "loan to value ratio" (LTV) specifically measures the ratio of the loan amount to the overall value of the property being financed. This metric is crucial in the mortgage industry as it helps lenders assess the risk involved in a loan. A higher LTV indicates that the borrower has less equity in the property and poses a greater risk to the lender, which could lead to higher interest rates or the requirement for private mortgage insurance.

In contrast, the other options focus on different financial metrics or concepts that do not accurately represent the purpose of LTV. For instance, measuring the down payment against the total price pertains to initial investment rather than the relationship between loan amount and property value. The ratio of total loan amount to borrower's income assesses affordability rather than the security of the loan. Finally, comparing interest rate to loan principal focuses on cost rather than the equity position or risk represented by the LTV.