1. What is the LTV Ratio?

The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. It's commonly used in mortgage lending to assess the risk of a loan.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• Loan Amount — The amount of money borrowed
• Property Value — The appraised value of the property

Explanation: The LTV ratio represents what percentage of the property's value is being financed by the loan.

3. Importance of LTV Ratio

Details: Lenders use LTV to evaluate lending risk. Lower LTV ratios generally mean better loan terms and interest rates. Most conventional loans require LTV ratios of 80% or less to avoid private mortgage insurance (PMI).

4. Using the Calculator

Tips: Enter the loan amount and property value in dollars. Both values must be positive numbers. The calculator will compute the LTV ratio as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio?
A: Generally, an LTV of 80% or lower is considered good and may qualify you for better interest rates and avoid PMI.

Q2: How does LTV affect mortgage approval?
A: Higher LTV ratios (above 80%) may require PMI and can make loan approval more difficult as they represent higher risk to lenders.

Q3: Can LTV be more than 100%?
A: Yes, if the loan amount exceeds the property value, resulting in negative equity. This typically happens when property values decline.

Q4: How can I lower my LTV ratio?
A: You can lower your LTV by making a larger down payment, choosing a less expensive property, or waiting for property values to increase.

Q5: Is LTV the same as combined LTV (CLTV)?
A: No, CLTV includes all liens on the property (like second mortgages or home equity loans), while LTV only considers the primary mortgage.