LTV
Loan-to-Value ratio — the ratio of a loan amount to the appraised value of the property, used by lenders to assess risk. Lower LTV means more equity and less risk.
Example
“With a $320,000 mortgage on a $400,000 home, the LTV was 80%, just at the threshold to avoid PMI.”
Memory Tip
LTV = Loan divided by Value. 80% LTV = 20% down. Keep it at or below 80% to avoid PMI.
Why It Matters
LTV directly affects your mortgage approval chances and the interest rate you will receive. Lenders view lower LTV ratios as safer investments, so borrowers with higher down payments and lower LTV ratios typically qualify for better loan terms and may avoid costly mortgage insurance.
Common Misconception
Many people assume that LTV only matters at the time of purchase, but it actually changes over time as your home appreciates or depreciates in value. A home that increases in value can give you a lower LTV even without making additional payments, which may open up refinancing opportunities.
In Practice
If you purchase a home appraised at $300,000 and take out a mortgage loan for $240,000, your LTV ratio is 80 percent. If that same home later appraises at $350,000 while you still owe $240,000, your LTV drops to approximately 69 percent, potentially allowing you to refinance or remove private mortgage insurance.
Etymology
Acronym for Loan-To-Value. The LOAN amount compared to the property's VALUE.
Common Misspellings
Compare today's mortgage rates
Related Terms
More in real estate
Other real estate terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.