What Is Loan-to-Value Ratio?

What Is Loan-to-Value Ratio (LTV)?

Quick Answers

PMI threshold

Above 80% LTV

Best rate LTV

Below 80%

Formula

Loan / Property Value

FHA max LTV

96.5%

Loan-to-value ratio (LTV) is the percentage of a property's value that is financed by a mortgage -- a key metric lenders use to assess risk, determine rates, and decide whether PMI is required.

LTV compares your loan amount to the appraised value of the property. A lower LTV means you have more equity (or a larger down payment), which signals lower risk to lenders. A higher LTV means the lender is financing more of the property's value and takes on more risk if you default.

LTV is the primary trigger for private mortgage insurance (PMI) required when LTV exceeds 80% on conventional loans. Once your LTV drops to 80% through payments and/or appreciation, you can request PMI cancellation. At 78% LTV, lenders are required by law to cancel PMI automatically.

Key LTV Thresholds

80% LTV: No PMI required on conventional loans. Best rates available.
8090% LTV: PMI required. Slightly higher rates.
9095% LTV: PMI required. Higher rates. Some loan programs allow up to 97% LTV.
9597% LTV: Available on certain conventional loans (Fannie/Freddie) and FHA loans (96.5% max).
100% LTV: VA and USDA loans allow zero down payment (100% financing) without PMI.

How to Calculate LTV

LTV = (Loan Amount / Appraised Property Value) x 100

Example: $320,000 loan / $400,000 value x 100 = 80% LTV

Exactly at the PMI threshold -- no PMI required

Here's why that 80% line matters in real dollars. Say you're buying the same $400,000 home but only put down $40,000 (a $360,000 loan). Your LTV is 90%, so PMI applies -- typically 0.5% to 1.5% of the loan annually. At 0.75%, that's $2,700 per year, or $225 added to your monthly payment, on top of principal and interest. Coming up with the extra $40,000 to reach 80% LTV would eliminate that $225/month entirely -- money worth weighing against whatever else that cash could do for you.

Common LTV Mistakes

Treating LTV as fixed at closing: Your LTV changes every month as you pay down principal, and it can also shift with your home's market value -- a home that appreciates lowers your LTV even if you haven't made extra payments.
Using the purchase price when refinancing: Lenders calculate LTV on a refinance using the home's current appraised value, not what you originally paid. If your home has gained value, your refinance LTV may be lower than you expect; if values have dropped in your area, it could be higher.

Frequently Asked Questions

How does LTV affect my mortgage rate?+

Lenders use LTV as a risk factor in rate pricing. Generally, the lower your LTV, the lower your rate. The best rates typically go to borrowers with LTV at or below 6075%. Each 5% increase in LTV may add a small rate premium.

How can I lower my LTV?+

Make a larger down payment at purchase, make extra principal payments over time, or benefit from home value appreciation. You can also request a new appraisal if you believe your home has appreciated significantly.

What is CLTV (combined LTV)?+

CLTV includes all liens on the property -- your primary mortgage plus any home equity loan or HELOC. Lenders use CLTV (not just LTV) when evaluating home equity borrowing requests.

When can I cancel PMI?+

You can request cancellation when your LTV reaches 80% based on the original purchase price schedule. You can also request it if appreciation has pushed your value up -- typically requiring a new appraisal. Lenders must automatically cancel at 78% LTV.

Does LTV matter for refinancing?+

Absolutely. Your LTV at the time of refinancing determines whether you qualify, what rate you'll receive, and whether PMI is required. A cash-out refinance increases your LTV; a regular rate-and-term refinance maintains or lowers it.