1. What is Loan to Value (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 ratio to evaluate lending risk. Lower LTV ratios generally mean less risk for the lender and may result in better loan terms for the borrower.

4. Using the Calculator

Tips: Enter the loan amount and property value in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio?
A: Typically, lenders prefer LTV ratios of 80% or less. Above 80%, borrowers may need to pay private mortgage insurance (PMI).

Q2: How does LTV affect mortgage rates?
A: Lower LTV ratios often qualify for better interest rates as they represent less risk to the lender.

Q3: Can LTV be more than 100%?
A: Yes, if the loan amount exceeds the property value, the LTV will be over 100%, indicating negative equity.

Q4: How is LTV different from combined LTV (CLTV)?
A: CLTV includes all loans on a property (first mortgage, second mortgage, HELOC, etc.), while LTV typically refers to just the primary mortgage.

Q5: Does LTV affect refinancing?
A: Yes, most lenders require a maximum LTV (often 80-90%) for refinancing, and better rates are available at lower LTVs.