What is Loan-to-Value?
Loan-to-value (LTV) is a ratio reflecting the amount of the loan as a percentage of the current market value of your home. You can calculate your LTV by dividing your existing loan amount by the current value of your home. For example, if you borrow $150,000 and your home is valued at $200,000, your loan-to-value ratio is 75%.
The term loan to value, or LTV, applies primarily to the mortgage banking industry. Loan to value is an equation that mortgage lenders use to assess their risk in lending a borrower money to purchase property. The loan to value equation is basically a ratio of the amount of money being borrowed to the value or purchase price of the property, whichever is less. To determine LTV of a new purchase, the purchase price or appraised value is divided by the down payment. As an example, if you were to purchase a home for $100,000 and had $10,000 to apply as a down payment, the loan to value ratio would be 90%. The purpose of establishing the loan to value ratio in the purchase of a home is to protect the lender from lending more money than the property is worth. This is why the appraised value must be at least equal to the purchase price. For consumers, the loan to value ratio weighs heavily on the interest rate you will receive on the payback of the loan. The lower the LTV, the lower the inte
