# Loan-to-Value Ratio (LTV ratio)

## Loan-to-Value Ratio

Borrowing in the *Term Structure* protocol is similar to most DeFi lending protocols in terms of collateral requirements. Under the over-collateralization model, the borrower's collateral value must be larger than the loan value.

**Loan-to-Value ratio*** (LTV ratio)* indicates the ratio of loan value relative to the collateral value. Different pairs of collateral and borrowed tokens may have different *Maximum Initial LTV Ratio*.

## Maximum Initial LTV Ratio

*The Maximum iInitial LTV Ratio* is the highest acceptable ratio of the debt (principal plus interest) to collateral when the borrowing order is submitted.

For non Stablecoin-Pair Loans, the Maximum Initial LTV Ratio is `0.75`

, which means that the borrower can borrow up to where the debt is 75% of the value of the collateral. For the Stablecoin-Pair Loan, the Maximum Initial LTV Ratio is `0.9`

.

For example, Alice collateralizes

`USD 10,000`

worth of ETH and borrows`USD 5,000`

worth of DAI for 6 months (0.5 year) at`5%`

interest. Then Alice'sLTV ratiowill be`5000 * (1 + 0.05 * 0.5) / 10000 = 0.5125`

`5000`

- the borrowing value of*DAI*`0.05`

- 5% interest rate`0.5`

- term of half a year`10000`

- the collateral value of*ETH*`0.5125`

-*LTV ratio*

Under the same term period and interest rate above, the maximum value Alice can borrow will be the DAI equivalent of USD

`(10000 * 0.75) / (1 + 0.05 * 0.5) ~= 7317`

*The Maximum Initial LTV Ratio* is the highest *LTV ratio* allowed when placing a borrowing order. The *Liquidation Mechanism* will be triggered when the *LTV ratio* hit the *Liquidation Threshold*.

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