Loan-to-Value Ratio (LTV)
Percentage of property value financed by mortgage; higher LTV means lower down payment.
Key Takeaways
- First, understand the key concepts and how things work
- Always verify the most current rules with official authorities
- Seek advice from professionals who specialize in your situation
Overview
The Loan-to-Value (LTV) ratio is a financial term that represents the percentage of a property's value that is financed by a mortgage loan. You calculate it by dividing the loan amount by the appraised value of the property.
How LTV is Calculated
- LTV = (Loan amount / Property value) × 100%
- Example: $400,000 loan on $500,000 property = 80% LTV
- Higher LTV = lower down payment
- Lower LTV = less risk for lender
LTV and PMI Requirements
In the US, LTV ratios above 80% typically require Private Mortgage Insurance (PMI). In Canada, mortgage default insurance is required for LTV ratios above 80% (down payments less than 20%).
Related Glossary Terms
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Here we explain the fundamental concepts and practical applications in real estate and finance.
Each circumstance is different, so this piece offers general guidance. For personalized advice, consult a qualified professional.
Turn to official sources such as the IRS, CRA, HUD, and CFPB for the most accurate and up-to-date information.
This content is for informational and educational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified professional for advice specific to your situation.