Loan to Value – What Does That Mean?
This ratio is one risk factor lenders consider when qualifying borrowers for a mortgage. To calculate loan to value (LTV), divide the mortgage amount by the appraised value of the property.
For example, if you plan to borrow $170,000 to purchase a home valued at $180,000, the LTV is 94% (170,000/180,000). A low LTV under 80% may translate into a better interest rate when factored with your credit rating and other debts. A high LTV may mean private mortgage insurance (PMI) is required, depending on the type of home loan.