Loan-to-value ratio (LTV)
The loan amount divided by the property’s appraised value or price, showing how much of the home is financed.
What it means
LTV measures the lender’s risk. A higher LTV means the borrower has less equity cushion, so lenders may charge more, require mortgage insurance or decline the loan. For a purchase, lenders typically use the lower of the purchase price and the appraised value.
LTV falls as the loan is paid down or the home gains value. Combined LTV, or CLTV, adds every loan secured by the home, such as a first mortgage plus a HELOC, and is used for home equity borrowing and refinancing.
Formula
LTV = loan balance ÷ property value × 100
- loan balance = amount owed on the mortgage
- property value = appraised value or purchase price, whichever the lender uses
Example
For example, a $320,000 loan on a $400,000 home has an LTV of 80%. If the owner also opens a $40,000 HELOC, the combined LTV is $360,000 ÷ $400,000, or 90%.
How it’s used
- Determining whether PMI is required
- Qualifying for a refinance or cash-out
- Setting how much a home equity line can provide
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.