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:

• \( \text{Loan Amount} \) — The amount of money borrowed
• \( \text{Property Value} \) — The appraised value or purchase price of the property

Explanation: The LTV ratio is expressed as a percentage. A higher LTV ratio indicates more risk for the lender.

3. Importance of LTV Calculation

Details: LTV is crucial for lenders to determine loan eligibility, interest rates, and whether mortgage insurance is required. Lower LTV ratios generally result in better loan terms.

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, as it typically avoids the need for private mortgage insurance (PMI).

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

Q3: Can LTV be more than 100%?
A: Yes, this means the loan amount exceeds the property value (underwater mortgage), which can occur if property values decline.

Q4: How is property value determined?
A: For purchases, it's typically the purchase price. For refinances, it's the appraised value. Some lenders use the lower of the two.

Q5: Does LTV include closing costs?
A: Standard LTV calculations don't include closing costs, but the Combined LTV (CLTV) ratio might if you're rolling costs into the loan.