Loan-to-Value Ratio
Loan-to-Value Ratio
The loan amount as a fraction of the property value. Lenders use it to price risk: higher LTV means a smaller equity cushion if the property must be sold.
When to use: Use when sizing a mortgage, checking whether private mortgage insurance applies (commonly above 80% LTV), or judging how much equity a refinance leaves.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| LTV | Loan-to-Value | Loan as a fraction of value | % |
| LoanAmount | Loan Amount | Mortgage principal | $ |
| PropertyValue | Property Value | Appraised or purchase value | $ |
Real-Life Examples
Example 1: 20% Down
A $400,000 home bought with an $80,000 down payment and a $320,000 mortgage.
Given
Step-by-Step
At exactly 80% the borrower typically avoids mortgage insurance and gets the best conventional pricing.
Example 2: 10% Down
A $500,000 home with $50,000 down.
Given
Step-by-Step
90% LTV usually triggers mortgage insurance and a higher rate: the lender has only a 10% cushion against a price decline.
Frequently Asked Questions
The lower of the purchase price and the appraised value on a purchase, and the appraised value on a refinance.
The same ratio with every lien on the property in the numerator, such as a first mortgage plus a home equity line.