Determine Your Loan-to-Value Ratio Quickly and Accurately

Loan to value determines interest rate, down payment and equity if refinancing

What is a loan-to-value ratio (LTV)?

Loan to value graphicThe loan-to-value ratio (LTV) is the ratio of the value of the loan to the value of the property. It is a common metric used by lenders to assess risk in mortgage loans. A high LTV ratio indicates a higher risk to the lender, as the loan amount is a greater percentage of the value of the property. Lenders may require mortgage insurance for conventional loans with high LTV ratios, as it protects them from loss if the borrower defaults on the loan.

If you're not sure how to calculate the loan-to-value ratio, don't worry. We've got a handy calculator below that will do it for you. Simply enter the purchase price (or property value) of the home, the amount of the down payment, and the mortgage interest rate. The calculator will then tell you the loan-to-value ratio.

Calculating Your Loan-to-Value Ratio

LTV is calculated by taking the mortgage amount and dividing it by the appraised value or purchase price of the property, whichever is less. For example, if a borrower has a loan amount of $100,000 and the property is worth $200,000, the LTV would be 50%.

If the property were only worth $150,000, then the LTV would be 66.7%. The lower the LTV, the better for the borrower because it means they have more equity in their home. A high LTV can also result in the borrower having to pay for mortgage insurance.

Young couple who purchased a houseMortgage insurance is insurance that protects the lender in case the borrower defaults on their loan. It is usually required when the LTV is over 80%.

The type of mortgage also affects how LTV is calculated. For example, with an FHA loan, lenders use a formula that takes into account both the purchase price and any necessary repairs to come up with a maximum loan amount. This is then divided by the appraised value to get the LTV.

What is a Good Loan-to-Value Ratio?

The loan-to-value ratio (LTV) is a risk assessment metric that financial institutions and other lenders use to evaluate the collateral underlying a loan. In simple terms, it is a measure of how much equity you have in your home.

A high LTV means you have less equity in your home and may be more likely to default on your mortgage. A low LTV, on the other hand, means you have more equity in your home and are less likely to default. The ideal LTV depends on the lender, but most will prefer a lower ratio. Your credit score also plays a role in determining the ideal LTV for you.

Your Loan-to-Value Ratio Is Too High?

If your loan-to-value (LTV) ratio is too high, it can affect your mortgage in a number of ways. A high LTV ratio means that you have a higher risk of defaulting on your loan, which could lead to your lender requiring private mortgage insurance (PMI).

A high LTV ratio could also mean that you have less equity in your home, which could make it difficult to refinance. If your LTV ratio is higher than 80%, it is considered to be a high LTV ratio (for a conventional loan). There are a number of factors that can impact your LTV ratio, including the type of loan you have, the value of your home, and the amount of equity you have.

Why Is Loan to Value So Important?

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac) establish guidelines for conventional loans. Fannie Mae and Freddie Mac supply the banks and mortgage bankers with the mortgage money.

After settlement, one of these companies usually buys the loan. The lender receives a commission for the sale and is reimbursed for the loan. Fannie Mae and Freddie Mac require lenders to follow their lending guidelines. One of their requirements is the 20% down payment.

But most home buyers are unable or unwilling to make a 20% down payment. And that's where the private mortgage insurance companies come in.

What is Private Mortgage Insurance?

Private mortgage insurance (PMI) is a service you must pay to your lender if your down payment is less than 20%. The PMI company guarantees the difference between the down payment and 20%.

For example, you make a 5% down payment, the PMI company will pay the lender 15% is the loan goes into default. Fannie Mae and Freddie Mac want 20 percent equity in order to purchase a home, and the lender achieves that requirement with your 5 percent down payment and the 15 percent guarantee.

Having a high LTV ratio can affect a homebuyer in a couple of different ways. For one thing, if your LTV ratio is higher than 80% and you’re trying to get approved for a conventional mortgage, you’ll have to pay private mortgage insurance (PMI).

What is the Cost of PMI?

The PMI premium takes into consideration the loan amount, credit score and a few other variables. As the down payment decreases, the PMI premium increases.

The PMI companies offer 4 payment plans, monthly, single premium, split premium and lender paid mortgage insurance. The lender paid option exchanges a higher interest rate for elimination of the PMI cost.

Combined Loan-to-Value Ratio (CLTV)

The combined loan to value (CLTV) ratio frequently pops up with refinance mortgages. The lender adds the 1st and 2nd loan balances and divides the total by the appraised value of the home.

Combined loan to value, or CLTV, is a term used in the mortgage industry to describe the ratio of a mortgage loan to the value of the property being mortgaged. The CLTV is important because it helps lenders determine how much risk they are taking on with a particular loan. A high CLTV ratio means that there is a higher chance that the borrower will default on the loan, and therefore poses a greater risk to the lender.


The loan to value ratio calculator can help you figure out how much house you can afford. With this information, you can confidently search for your dream home. Remember to stay within your budget and be mindful of your other financial responsibilities.

Loan-to-Value Ratio Calculator for a Conventional Loan

As you can see, the loan to value ratio plays a significant role in determining the size of your mortgage and impacts your monthly mortgage payment.

Simply skip the down payment box to estimate the LTV for a refinancing transaction.


Current appraised value
Less down payment
Loan Balance (1st loan)
Loan Balance (2nd loan)
Loan Balance (3nd loan)
Loan to Value
Combined Loan to Value