The Loan to Value Ratio (LTV) is what financial institutions use to assess risk before approving a mortgage. The Loan to Value Ratio (LTV) shows how much equity you have in a house relative to the amount you want to borrow or already have borrowed, and is one of the key risk factors assessed by lenders. A higher LTV ratio means higher risk for the lender, and may keep you from getting a loan. The highest LTV most lenders will accept is 95% with very good credit. Keep an eye on your LTV ratio over time as your mortgage balance is paid down, and as your house appreciates in value, because you may be able to eliminate the cost of monthly private mortgage insurance (PMI) if the ratio is below 80%.
How do you calculate loan to value?
- Enter your current mortgage balance.
- Enter your second mortgage balance (if applicable).
- Enter your lien balance (if applicable).
- Enter your property value.
- The first loan-to-value ratio is calculated by dividing the current mortgage amount by the property value and the cumulative loan-to-value ratio is calculated by dividing the mortgage amount(s) by the property value.
To see how the loan-to-value (LTV) formula works, here’s the basic formula and an example:
- Loan Amount ÷ Current Appraised Value = LTV
What About a Combined Loan-to-Value Ratio?A combined loan-to-value ratio (CLTV) is the ratio of all loans on a property to the value of that property. Unlike an LTV, which looks at the ratio of a single loan to a property’s value, a combined LTV includes the LTV mortgage plus any lines of credit, home equity loans, second mortgages, or other liens. Unlike LTV ratios, many institutions are willing to lend at a CLTV ratio of 80% or higher if the applicant(s) have good credit ratings.
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