Loan-to-Value Ratio (LTV)
What Is Loan-to-Value Ratio (LTV)?
Loan-to-Value ratio (LTV) measures the size of your mortgage compared to the value of the property.
It is calculated as:
Loan Amount ÷ Appraised Value = LTV
LTV helps lenders assess risk.
Why It Matters in a Mortgage
LTV impacts:
- Mortgage insurance requirements
- Interest rate pricing
- Loan approval
- Equity position
Example:
Home Value: $400,000
Loan: $320,000
LTV: 80%
An LTV above 80% often triggers mortgage insurance on conventional loans influenced by standards from Fannie Mae.
Lower LTV generally signals lower risk.
How It Works
Higher LTV → Less equity → Higher lender risk
Lower LTV → More equity → Lower lender risk
Equity increases as principal is repaid or property value rises.
LTV vs. CLTV
LTV → Primary mortgage only
CLTV → Combined loan balances
FAQs About LTV
Does appraisal affect LTV?
Yes.
Can LTV change over time?
Yes, as balance and value shift.
Is 80% a key threshold?
Often yes for insurance purposes.
Related Terms
