What Is Loan-to-Value Ratio (LTV)?
Loan-to-value ratio (LTV) is one of the most important metrics in mortgage lending. It expresses how much you are borrowing as a percentage of the property's appraised value or purchase price, whichever is lower. Lenders use LTV to measure risk: the higher the LTV, the less equity you have in the home and the greater the lender's exposure if you default.
How to Calculate LTV
The formula is straightforward:
LTV = (Loan Amount ÷ Property Value) × 100
For example, if you are purchasing a home appraised at $400,000 and taking out a mortgage for $320,000, your LTV is:
($320,000 ÷ $400,000) × 100 = 80% LTV
The remaining 20% — $80,000 in this case — represents your down payment and your initial equity stake in the property.
If you are refinancing, the property value used is typically the current appraised value rather than the original purchase price. Your current LTV may be lower than your origination LTV if your home has appreciated or you have paid down your principal balance.
Why LTV Matters
LTV affects nearly every aspect of your mortgage:
- PMI requirement: On conventional loans, lenders generally require Private Mortgage Insurance (PMI) when LTV exceeds 80%. PMI adds a monthly cost that protects the lender — not you — if you default.
- Interest rate: A lower LTV signals less risk to the lender, which typically translates to a lower interest rate. Borrowers with LTV above 95% often pay a noticeably higher rate than those at 80% or below.
- Loan program eligibility: Many loan programs have LTV caps. Conventional conforming loans top out at 97% LTV for most programs. Jumbo loans and certain refinance products may require 80% or lower.
- Refinance options: A high LTV can limit your ability to refinance, particularly for cash-out refinances, which most lenders cap at 80% LTV.
LTV Thresholds and What They Mean
| LTV Range | PMI Required? | Risk Level | Notes |
|---|---|---|---|
| 80% or below | No | Low | Best rates; no PMI on conventional loans |
| 80.01% – 90% | Yes | Moderate | PMI required; competitive rates still available |
| 90.01% – 97% | Yes | Higher | PMI required; rate adjustments apply at higher LTVs |
| Above 97% | Yes | Very High | Limited programs (FHA at 96.5%, some HFA loans); not available on conventional |
Combined Loan-to-Value Ratio (CLTV)
When you have more than one loan secured by the same property — for example, a first mortgage and a home equity line of credit — lenders calculate the combined loan-to-value ratio (CLTV). CLTV adds all outstanding balances together:
CLTV = (First Mortgage Balance + Second Mortgage/HELOC Balance) ÷ Property Value × 100
A common strategy called a piggyback loan (or 80-10-10) uses a CLTV to avoid PMI. A borrower puts 10% down, takes an 80% first mortgage (no PMI), and opens a 10% second mortgage or HELOC — keeping the first mortgage at exactly 80% LTV even though total debt is 90% of the home's value. Lenders evaluate CLTV when you apply for a second loan or HELOC, so a low first mortgage LTV does not guarantee approval if the CLTV is high.
How to Improve Your LTV
There are three ways to lower your LTV:
- Larger down payment: The most direct method. Putting 20% down on a $400,000 home instead of 10% means your initial LTV is 80% rather than 90%, eliminating PMI and likely securing a better rate.
- Pay down principal: Every extra payment you make reduces your loan balance, which lowers your current LTV. Once your balance reaches 80% of the original purchase price, you can request PMI cancellation on conventional loans. At 78%, your lender must cancel PMI automatically.
- Home appreciation: If your home's market value rises, your LTV falls even if your loan balance has not changed. You can request a new appraisal and, if the LTV meets your lender's threshold, apply for PMI removal — though lenders typically require a seasoning period (often two years) before accepting an appraisal-based cancellation request.
LTV at Origination vs. Current LTV
It is important to distinguish between these two figures. LTV at origination is calculated once at closing using the purchase price or appraised value at that time. It determines your initial loan terms and PMI requirement. Current LTV is recalculated using your present loan balance and the home's current market value. Current LTV is what matters for refinancing, PMI cancellation requests, and HELOC eligibility.
If you bought a home three years ago with 10% down and the home has appreciated 15%, your current LTV may already be below 80% — even before accounting for principal paydown. Keeping track of both figures helps you identify opportunities to reduce costs or access equity.
Use the PMI Calculator to see how LTV affects your monthly PMI cost at different loan balances. For more context on how LTV interacts with your debt obligations, see What Is Debt-to-Income Ratio?
Source: CFPB — What is the loan-to-value ratio?
This definition is for informational purposes only and does not constitute financial advice.