What is LTV?
LTV stands for the Loan-to-Value ratio. If you currently have a mortgage on your property, this is the ratio of the market value of your home to the balances of all mortgages on the property. If you do not currently have a mortgage on your property, this is the ratio of the value of your home to the value of the loan that will be secured by your property.
Loan-to-value (LTV) is a ratio that depicts the relationship of a loan amount with the value of a property. This ratio is obtained by dividing the amount of a loan by either the sale price of the property or the property’s appraised value. The lower of the two amounts is used. LTV is one of the many factors used by lenders in determining whether or not to approve a mortgage. LTV is expresses as a percentage. For example, a loan of $50,000 on a $100,000 home has an LTV of 50 percent. A mortgage can be said to have a high LTV when the amount of money lent is high in relation to the down payment of the borrower or the equity held in the property. For example, if a borrower provides a down payment of five percent and the mortgaged amount is 95 percent of the sale price, the loan is considered to have a high LTV. Lenders typically view loans with high LTVs as more risky than those in which borrowers offer more substantial down payments or have larger amounts of equity. From a lender’s point
by Joe Taylor Jr. CMR Columnist E-mail Friend Printer Friendly Prior to mortgage approval, lenders must consider the Loan to Value ratio, known as LTV. With more lenders offering mortgages with little or no money down, underwriters use LTV to minimize risk for themselves and for borrowers. Until recently, LTV was a term you only heard when speaking with industry insiders and hard-core mortgage geeks. LTV is actually a simple mortgage rate computation. You can run the numbers yourself to help find the right lender for your home purchase. LTV is computed by dividing the amount you want to borrow by the appraised value of your home. For example, you want to buy a $150,000 house. With a down payment of 20% ($30,000) you would apply for a $120,000 mortgage. Therefore your LTV would be 80% since the loan amount is 80% of the total value of the home.
