What is a loan to value (LTV) ratio and why is it important?
The loan-to-value ratio is the relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent. This ratio is used to measure how much equity you have in your property. The higher the loan-to-value (or lower equity) the higher the risk the borrower may default on the loan. Therefore, LTV is a critical factor in determining eligibility for home loans and rates. Put simply, the lower the property’s LTV, the lower the rate.
