How to Calculate Mortgage LTV

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The difference between the amount still owed on your mortgage and the current market value of your home is referred to as the loan-to-value, or LTV.

For example, if you bought a home valued at $200,000 and put down $40,000, your LTV would be 80% ($200,000-$40,000=$160,000).

That $160,000 is the total amount of money you have borrowed. Now, divide $160,000/$200,000=80%.

What is a Mortgage Loan-to-Value Ratio (LTV)?

The lender will use the mortgage loan-to-value (LTV) ratio to decide how much of a loan you may receive when purchasing a home. It refers to the loan's ratio to the cost of the home. They will calculate it by dividing the loan amount by the house's purchase price. Your LTV ratio will be 80%, for instance, if you want to purchase a home for $100,000 but can only get finance for $80,000. The lender needs to know this figure since it gives them insight into how dangerous the loan is.

How to Calculate the LTV of a Mortgage

  1. Calculate the loan amount: Divide the total purchase price by the down payment percentage. For example, if the purchase price is $200,000 and the down payment percentage is 20%, the loan amount is $160,000.
  2.  Calculate the loan-to-value ratio: Divide the loan amount by the purchase price. For example, in the previous example, the loan-to-value ratio is 80%, or 0.8.
  3.  Calculate the loan-to-value (LTV): Multiply the loan-to-value ratio by 100. The LTV for the example is 80%.

The Importance of LTV in Mortgage Approval

  • Loan-to-value (LTV) ratio is an essential factor in mortgage approval. The LTV ratio is a comparison of the amount of the loan to the value of the property. A high LTV ratio, such as 90% or more, is considered a riskier loan since the borrower has less equity in the property.
  •  Lenders use the LTV ratio to determine the risk associated with a loan. Generally, a higher LTV ratio indicates a greater risk of default, while a lower LTV ratio is associated with a lower risk.
  •  Lenders use the LTV ratio to determine the loan amounts they will approve. The higher the LTV ratio, the lower the loan amount the lender will likely agree with. For example, if a lender has a maximum LTV ratio of 80%, they may only approve a loan for 80% of the property's value.
  •  The interest rate and other loan terms are also based on the LTV ratio. Higher LTV ratios typically come with higher interest rates, as the lender takes on more risk with the loan.
  •  Overall, the LTV ratio is an essential factor in mortgage approval, and it is used to determine the loan's risk, amount, and terms. Lenders must consider the LTV ratio when approving a loan to ensure that the loan is affordable and that the borrower is not taking on more risk than they can handle.

How LTV Affects Interest Rates and Mortgage Terms

A notebook with the initials LTV on a page and below the initials, the words, Loan to ValueA loan's loan-to-value ratio, also known as LTV, is a crucial component that plays a role in determining the interest rate as well as the other terms of a mortgage. To calculate the loan-to-value (LTV) ratio, divide the loan amount by the property's estimated value.

The higher the LTV ratio, the more risk the lender takes on, and the more likely the borrower is to default. As such, lenders typically require borrowers with higher LTV ratios to pay higher interest rates and fees and may also impose stricter terms and conditions. Lenders may also require borrowers with higher LTV ratios to purchase private mortgage insurance (PMI) to protect against potential losses.

What is a High LTV Mortgage?

A high LTV mortgage is a loan with a high loan-to-value (LTV) ratio. This means that the borrower has taken out a loan equal to or greater than 80% of the value of the collateral used to secure the loan. High LTV mortgages require the borrower to pay private insurance (PMI).

What is a Low LTV Mortgage?

A low LTV mortgage is a loan with a loan-to-value (LTV) ratio lower than the industry standard. Generally, lenders require borrowers to have an LTV ratio of 80% or less to qualify for the lowest mortgage rates and most favorable loan terms. Low LTV mortgages allow borrowers to avoid private mortgage insurance and can be beneficial if a borrower is looking to purchase a home with a small down payment.

How to Improve Your LTV Ratio

  1. Pay down your mortgage principal. The most direct way to improve your can lower your loan-to-value (LTV) ratio is by making extra payments on your mortgage, and this will reduce the numerator in the ratio and raise your LTV ratio.
  2.  Increase the value of your home. Your LTV ratio will be better if you can raise the value of your house. For example, you can improve your home to increase its market value, which will increase the denominator in the ratio and, as a result, improve your LTV ratio.
  3.  Refinance your mortgage. Refinancing your mortgage can help you improve your LTV ratio. When you refinance, you can reduce your principal amount, reducing the numerator in the ratio and lowering your LTV ratio. You can also take on a longer loan term, increasing the denominator in the ratio and improving your LTV ratio.
  4.  Ask your lender for help. Your lender may have options to help you improve your LTV ratio, and they may be able to offer you a loan modification or other assistance. It's worth it to reach out and see if they can help.

How LTV Impacts Private Mortgage Insurance (PMI)

LTV, or loan-to-value, is essential in private mortgage insurance (PMI). The higher the LTV, the higher the cost of PMI since lenders view high-LTV mortgages as a greater risk. This is because, with a higher LTV, the borrower has less equity in the home, making the loan more likely to end up in foreclosure, resulting in a more significant loss for the lender. As such, lenders will require more protection, typically in the form of PMI. Conversely, a lower LTV means less risk for the lender, resulting in lower PMI costs.


The loan-to-value (LTV) ratio compares how much you owe on your mortgage to the actual value of your home. Lenders use LTV to assess the risk involved in a loan, the maximum loan amount they will approve, the interest rate, and other loan terms. Generally, a higher LTV ratio denotes a higher default risk, while a lower LTV ratio denotes a lower risk.

Higher LTV ratio borrowers may be subject to stricter terms and conditions and higher interest rates and fees. You can make extra payments to lower your mortgage balance or raise the value of your home to increase your LTV ratio.