Understanding Loan to Value Ratio

March 8, 2021 10:50 am

House model with real estate agent and customer discussing for contract to buy house, insurance or loan real estate background.A loan to value ratio, or LTV, is the relative difference, expressed as a percentage, between the current value of the home and the loan amount. In other words, it’s how much of a property a borrower owns versus how much of a property the bank still owns. An LTV is used to help assess the risk of a home loan. A higher LTV usually means a higher risk loan and often a higher interest rate. To calculate LTV, divide the total loan amount by the appraised value of the home.

The higher your down payment, the lower the LTV on your mortgage will be. As you make mortgage payments each month, the LTV will decrease. The LTV can also decrease if home values in your neighborhood rise or you make renovations or additions to the home that increase its value.

To learn more about LTV, click here.

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