What is a loan-to-value ratio LTV?
- An LTV ratio is a number used by lenders to help determine the financial risk of a mortgage. Your LTV ratio expresses the amount of money that you’ve borrowed compared to the market value of your home. So, if your LTV ratio on a mortgage is 75%, that means you have taken out a loan for 75% of your home’s value. Lenders may consider your LTV ratio as one factor when evaluating your mortgage application. Your LTV ratio may also impact the interest rate a lender sets for your loan.LTV ratios are especially influential in mortgage lending, but they may impact certain other secured loans or lines of credit. For example, lenders may also consider your LTV ratio when you apply for a home equity line of credit (HELOC) or a home equity loan.
How to calculate an LTV ratio
To find the LTV ratio of a mortgage, divide your current balance by the appraised value of the related property. Then, multiply the answer by 100 to get a percentage.
Say you’re looking to buy a home with an appraised value of $200,000 and a sale price of $190,000. You’ve worked hard to save a down payment of $40,000 and will cover the rest with a $150,000 mortgage. If you divide your $150,000 mortgage amount by the home’s $200,000 value, you’ll get an answer of 0.75. Multiply that number by 100, and you have an LTV ratio of 75%.
Written as a math problem, the calculations look like this:
$150,000/$200,000 x 100 = 75%
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